Lender Placed Insurance (LPI) is also known as force-placed insurance, and it’s a critical component of risk management for lenders.
You may see this called “forced-placed insurance”, but that is incorrect. It is only accurate when referred to as force-placed or lender-placed.
This kind of policy ensures lender interests and investments are protected in situations where borrowers fail to maintain adequate insurance coverage.
What Is Lender Placed Insurance?
Lender Placed Insurance or Force-Placed Insurance is a type of coverage that lenders utilize to protect their assets when a borrower policy lapses, or the borrower fails to meet their contractual obligations regarding insurance coverage in some other way.
Lenders know that insuring residential portfolios requires a combination of lender-placed insurance, insurance for HELOCS and Condominiums as well as strict adherence to regulations.
How Lender Placed Insurance Works
Protecting our clients’ borrower relationships is of the utmost importance. Efficient LPI insurance programs provide lenders with advanced technology and well-trained tracking agents to help their borrowers understand their situation before LPI needs to be placed.
When borrowers are unable to maintain the required insurance coverage, lenders have the right to force-place insurance on the collateral. Communicating this with a borrower in ways that meet compliance requirements is not an easy task. The overarching goal is to help the borrower remedy the issue before they are force-placed.
The lender has a right to place an insurance policy on the borrower's behalf if they do not obtain proper insurance during the notification period.
The cost of the insurance is then passed on to the borrower, who is responsible for the premium. This helps lenders mitigate the risk of uninsured collateral and potential financial loss resulting from borrower negligence or non-compliance.
Why Lenders Need Force-Placed Insurance to Protect Their Portfolio
This tool serves as a crucial safeguard, ensuring that the lender's investment is protected from risks such as damage, theft, or liability. It provides an additional layer of security when borrowers fail to meet their insurance obligations.
Our underwriters have over 100 years combined experience designing mortgage hazard and flood policies exclusively for lenders. Our team manages these customized policies for over 750 lenders and has a 100% positive implementation rate.
By having an LPI program in place, lenders can transfer the risk associated with residential mortgages.
Conclusion
Lender Placed Insurance is a vital tool for lenders with noteworthy regulations to ensure borrower protection as well.
By understanding what LPI is, how it works, and the reasons why it is necessary, lenders can effectively work with experts like Miniter Group to protect their assets, maintain compliance, and grow their bottom line.
Questions about risk, compliance or regulations? Ask Us Anything!
Consider reading more of our resources about LPI here:
- 9 Steps to CFPB Compliance: Lender-Placed Insurance
- Miniter Group’s Complete Guide to Force-Placed Insurance
- Insurance Tracking, RESPA Requirements and Settlement Agreements?
- 2022 Flood Regulation: Commercial Flood Insurance & Lender Compliance
