Force Placed Insurance: Good for Lenders and Bad for Borrowers

Force Placed Insurance

Force placed insurance is just what it sounds like: insurance that is placed on something by force. The entity forcing the policy is the lender of money, and the one who pays for it is the borrower. Your opinion of this type of coverage probably depends on whether you are the party who receives a benefit or the one who must pay a large premium.

Benefits to Lender

Most lenders view force placed insurance auto as the most efficient way to protect their investments when borrowers do not fulfill their obligation to purchase adequate car insurance. By adding forced insurance to the monthly car payment, lenders make sure that they do not lose money should an accident occur.

Detriments to Borrower

Adding a premium to the amount due on a car payment each month may sound like a way to simplify bill paying, but having force placed insurance is rarely a good deal for the borrower. Besides costing more, the policies only cover damage to the vehicle, and not personal liability or injuries to the driver.

The good news for everyone involved is that operating under force placed insurance is not a permanent situation. Once borrowers have reinstated their own auto insurance, they can take steps to remove the policy forced by the lender.

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