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Homeowners Insurance Overview
Homeowners insurance protects you from financial ruin in the event your home is damaged or burglarized, or if someone is injured while on your property. If you own your home outright, such insurance is optional. If you have a mortgage, the lender typically requires you to carry this type of property insurance in order to protect the lender’s investment.
Most of the time, the insurance policy payment is included in the monthly mortgage payment. In the event of a claim, the homeowner is responsible for the deductible, which varies based on the terms of the policy. Among the covered mishaps are interior damage, exterior damage, damage or loss of personal items, and any injuries that occur to others while they are on the premises.
Force-Placed Homeowners Insurance
If the insurance policy on your home lapses and you still have a mortgage, you could be the victim of a high-cost force-placed insurance policy, also known as lender-placed insurance.
A forced insurance policy is very expensive, but the lender has the law on its side. If you allow the insurance on your home to lapse, the lender has the right to buy a homeowners policy for your home and send you the bill.
In some cases, the force-placed policy can cost 10 times the amount you originally paid for a regular homeowners policy. Additionally, the force-placed policy most likely only covers the home, and not any of your personal belongings. This is because the lender only cares about insurance coverage for the asset covered by the loan, which is the home minus any contents, according to trustedchoice.com.
Force-placed insurers justify their high rates by insisting the homes that need such insurance coverage are at a higher risk of suffering a loss. In some cases, lenders have been accused of accepting kickbacks for using certain force-placed insurers.
In 2013, the Consumer Financial Protection Bureau instituted new rules ensuring mortgage companies first notify a homeowner that a force-placed policy will go into effect before the policy may be enforced. Some mortgage companies have been investigated regarding their force-placed insurance practices.
Limits of Insurance
Any damage caused by an earthquake or a flood is generally not covered by a homeowners policy, but oftentimes people who live in areas susceptible to such damage can buy extra hazard insurance to cover those events.
Damage from hurricane winds often are covered, but any damage from flooding is generally not covered, whether the water is from a hurricane or not. To cover flood damage, you must purchase additional flood coverage.
In some parts of the country, a hurricane claim may have a separate deductible or even a named-storm deductible. These are higher deductibles than paid under a normal homeowners insurance claim, and may be a percentage of the home’s coverage. Value Penguin notes that many states have laws that allow the insurer to charge between one and 10 percent of the home’s value.
In the event you believe a valid insurance claim on a homeowners policy has been denied, or that your claim was underfunded, you might wish to pursue legal action.
