What Is Forced Place Insurance?

You may have heard from a friend or relative that they are paying for forced place insurance. What is this type of insurance, and what does it do?

Definition

Forced place insurance is an insurance policy taken out by a lender or creditor when a customer does not carry insurance on an asset. The charges for this insurance are passed on to the customer.

Types

The most common types of forced place insurance are auto and homeowners insurance.

Why Forced Place Insurance?

Lenders take out forced place policies to protect their investments in case the collateral is damaged or destroyed. Without this insurance, lenders might be unable to recover loan balances.

Who Provides Forced Place Insurance?

Forced place insurance is obtained through high-risk insurance companies. Standard companies are unwilling to provide this coverage because of the high probability of loss.

Cost

Because borrowers who do not carry the necessary insurance coverage on assets represent high risks, premiums for forced place coverage are typically much higher than standard insurance premiums.

References

• CompuQuotes.com: Forced Place Insurance
• OCI: Forced Place Insurance Surprises Those Who Let Policies Lapse