As insurance pricing increases, you may be tempted to go without NH homeowner's insurance. From an insurance professional, this is obviously not advised because of the risk of significant financial loss and because you will likely end up paying much more even if you don't have a claim.
What’s Force-Placed Insurance?
When signing loan documents, the mortgage company requires that the property owner purchase homeowner's insurance to ensure the mortgagee is paid should damage occur to the dwelling. This is why the mortgagee is listed on the policy, as they not only get a copy of your policy and any other critical notices sent by your insurance company but are also entitled to certain rights as your mortgagee.
This means that if your NH homeowner's insurance policy is canceled, the lender will also be notified. Notification is standard practice and happens when a payment is late, a policy is reinstated, or you switch carriers.
Issues can arise should a lender receive a notice confirming a policy has been canceled without evidence of it being replaced. In this case, the bank will purchase an insurance policy on your home on your behalf, which is called forced place insurance.
Why homeowners don't want forced-placed insurance
1. Forced-place insurance is typically very expensive compared to insurance you can secure yourself. Since you ultimately pay the cost, the bank has little incentive to find a competitively priced policy. They’ll get a policy that works for them.
Lenders are also not in the business of purchasing insurance, so they price coverage high as a disincentive to rely on them to do so. As agents, we have seen pricing up to 10 times what you would pay with an agent!
2. Forced-place insurance is for the bank, not the homeowner. The insurance normally only covers your house (and perhaps secondary structures), and the maximum limit usually equals your outstanding mortgage balance, not the home's replacement cost.
3. Forced place insurance does not typically include coverage for personal property, loss of use, or personal liability, leaving a colossal coverage gap should a claim occur.
How do I know if my mortgage company purchased forced-place insurance on my behalf?
You will typically receive a notice in the mail or via email. If you miss this notice, your monthly mortgage payment will significantly increase. Even if your mortgage payment is automatically withdrawn, pay attention to what is being pulled and for what exactly is important.
What do I do if my mortgage company purchased forced-place insurance?
If your lender buys forced-place insurance, confirm with your insurance agent that you have an active homeowner's policy. If you do, contact your lender to find out where your agent can send proof of coverage.
Insurance companies and lenders are large companies, and communication can cross. As long as you can prove you have not had a lapse in coverage, your lender should be able to cancel the forced-place policy and remove the charges.
If you don't have coverage, contact an independent insurance agent to help you find a policy. If the policy was canceled due to a late payment of a day or two, work with them to see if you can reinstate it and send proof to your mortgage company that coverage is in effect.
If the lapse has been longer, secure coverage as soon as possible and send proof to your lender. The longer you go without coverage, the harder it will be to find a carrier willing to write the coverage for your home.
Get home insurance that works for you.
Don’t leave home insurance to the bank. If you are buying a home, get a home policy that meets your needs, not just to satisfy your lender. To do so, work with an independent insurance agent who understands the market and can find a carrier that meets your needs and budget.
What should you do if you can't afford homeowner's insurance? Again, talk with your agent. They will likely have solutions to help you lower the cost.
An independent insurance agency, like HPM Insurance, can compare policies from several insurers, so you aren’t limited to just one company’s options. A knowledgeable agent will be able to explain the coverage differences between the policies, allowing you to find the right coverages at a competitive price.
To speak with an independent home insurance agent in New Hampshire, contact us at HPM Insurance.
