Understanding the Fundamentals of Lender Placed Insurance Coverage

Understanding the Fundamentals of Lender Placed Insurance Coverage

Have you recently been notified that your insurance policy will require additional lender placed insurance and wondered what this extra coverage entails? In a nutshell, lender-placed coverage fills in the gaps when the insured party does not have adequate coverage already. To understand this insurance type better, take a look at these fundamentals.

Lender-Placed Coverage Protects the Lender When Homeowners Fail To Secure Adequate Insurance

The most common scenario where lender-placed coverage applies is when homeowners do not have adequate insurance already in place. By “inadequate insurance”, lenders may mean that a homeowner has:

  • An expired or canceled insurance policy
  • Missed premium payments
  • An inability to secure insurance due to property risks such as earthquakes, fires, flooding, high crime rates and more
  • Partial or inadequate coverage
  • Dropped or withdrawn coverage on the part of the insurer

Your Policy May Depend on Your Lender’s Specific Needs

Despite the umbrella-sounding name, lender-placed coverage can vary widely depending on a lender’s specific needs. Some common examples of this insurance include:

  • Real estate portfolio coverage for both commercial and residential property
  • Replacement cost compensation in the event a property is seriously damaged
  • Coverage for common liabilities, including natural disasters and certain business-related risks

Having lender placed insurance may seem confusing at first, but these fundamentals can help you reach a deeper understanding. With this coverage, the lender receives additional protection that can help to lower overall insurance risk.