Homeowners who allow their home insurance coverage to expire are at risk for the inability to pay out of pocket for repairs due to unexpected damage. This can prompt borrowers to default on mortgage payments, which may put lenders in a difficult financial situation. Here are three reasons why having additional lender placed hazard and flood coverage is essential for increased protection when homeowners’ coverage may lapse.
Residential and Commercial Coverage
Lender placed hazard and flood coverage is beneficial for residential, commercial and mobile home properties. Still, many policies will only pay claims for replacement values on residential properties and actual cash value for commercial properties.
Often insurers encourage lender placed hazard and flood insurance coverage or force place policyholders to add liability insurance for lenders with foreclosed properties. This insurance option is essential for many mortgage lenders’ Risk Control Plan when purchasing distressed loan assets.
Insured Individual Properties
Another added benefit to force place policies is the ability to insure individual properties instead of an entire portfolio. Additionally, this coverage charges the borrower for premium costs and reduces lenders’ expenses.
When borrowers let properties go uninsured, even for a short time, lenders increase their financial risk. This is why proper insurance coverage is essential to successfully conducting business long term.