Understanding Lender-Placed Insurance
Today’s lender-placed insurance is a critical part of the U.S. mortgage finance system
LPI protects homeowners' most important asset, their home. LPI supports homeownership by ensuring a home will always be protected and facilitating the mortgage process by removing the risk of uninsured loss for lenders, investors, and homeowners.
Lenders obtain LPI only when it is necessary. LPI covers any home that needs insurance, even those in high-risk flood or fire-prone areas, that other insurers may not be willing to cover.
The LPI process ensures clear and simple communication with the homeowner stressing that they can and should obtain their own insurance. When a homeowner does not maintain the required insurance, lenders provide reminder notices that the homeowner must secure insurance on the property.
Lender-Placed Insurance Process
Did you receive a letter from your lender that they are unable to confirm insurance on your home? If so, you should take the following steps immediately to avoid the lender purchasing a policy for the property.
- Call your insurance company or agent to confirm there is coverage on your home and provide evidence of that coverage to your lender.
- If you no longer have insurance coverage, take action immediately to obtain insurance on your home and provide evidence of that coverage to your lender.
Assurant’s Role in the Lender-Placed Insurance Market
Assurant is the leading provider of LPI. We’re proud of the important risk management role we provide to support U.S. homeownership. To further understand this relationship, we asked Oxford Economics to analyze our product and provide more information about its role in the mortgage financing system. Oxford also studied the relationship between LPI and the socioeconomic consequences of a natural disaster.
Oxford’s findings show that following a natural disaster, the presence of LPI is associated with lower debt-to-income ratios, fewer mortgage delinquencies and lower federal disaster recovery spending.
Oxford also determined that although the cost of LPI may be higher than standard coverage, it is not significant enough to cause mortgage delinquency. Instead, because LPI is a risk management safety net for homeowners, lenders and investors, Oxford found that LPI’s role has a positive impact on mortgage approvals.
Click here to download the Oxford Economics analysis report on Lender-Placed Insurance.
FAQs on LPI (Force Placed Insurance)
When a buyer purchases a home, their mortgage contract includes a requirement to maintain insurance on the property. This requirement protects the home and provides security for the homeowner and lender if the home is damaged or destroyed.
If a home is damaged or destroyed (for example, due to a fire or natural disaster), and the home isn’t insured, the homeowner won’t have insurance coverage to help them complete repairs or rebuild. This means both the homeowner and the mortgage lender would lose any financial interest they had in the home.
Yes, LPI and Force-placed insurance are different names for the same product. While there are older references to “force placed insurance,” LPI is never “forced” onto anyone. The homeowner agrees to maintain insurance coverage as part of their mortgage contract and always maintains the option to purchase their own coverage. If the homeowner does not maintain the required insurance, they are given at least 45 days’ notice and at least two clear letters reminding them of this loan obligation. LPI is only obtained by the lender to serve as a safety net to make certain the home is always protected.
Yes. Homeowners are notified prior to the placement of an LPI policy – two clear notices are sent in a 45-day period before a lender obtains an LPI policy. These notices give homeowners the opportunity to secure their own insurance coverage before the lender places insurance as a backstop.
Make sure you have your own insurance and send proof to your mortgage servicer. Contact your lender for additional information.
An LPI policy can be more expensive than the standard property insurance policy it replaces. LPI is available for all properties, even in the highest-risk areas. LPI is issued regardless of the condition or location of the property. As a result, insurance companies that underwrite LPI can have a higher exposure to potential claims, especially in locations with higher incidents of hurricanes, fires and other natural disasters.
At the federal level, the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 put in place federal requirements to help homeowners understand their mortgage obligations and their choice to maintain their own insurance; including that homeowners are required to be notified at least 45 days prior to an LPI placement and a second notice is sent if the homeowner hasn’t responded. The Dodd-Frank Act also includes standards for terminating an LPI policy and issuing refunds when a homeowner has secured their own insurance coverage. In addition, the Flood Disaster Protection Act and related regulations specify procedures for placing LPI in flood zones.
At the state level, LPI rates are reviewed by state insurance authorities. The National Association of Insurance Commissioners (NAIC) requires insurance companies to annually submit state-level LPI data for each state in which they operate.
Homeowners agree to maintain adequate insurance on their home throughout the duration of their mortgage. If LPI is obtained to protect the home, it is canceled when a homeowner provides proof of adequate insurance as required by their mortgage and the homeowner is refunded any overlap in premium.