Your House, Your Insurance, Or Else

house in landslide croppedOnly the rich can go without insurance.

The rest of us, my mother used to say, needed insurance to protect, repair or replace our stuff in case of accident.

She was right (aren’t mothers usually right?).

But what kind of insurance  you have on your home makes a world of difference.

Insurance made easy

A recent client reported that the bank was paying the insurance on her home, since she’d let her insurance lapse.  It seemed easier that way.

It may be easy, but it wasn’t protecting her.

The bank bought forced-placed insurance on her house, alright.  But it protected only the bank’s interest in the house.

If the house slide down the hill, she would get nothing.

Nothing.

She was not a loss-payee on the bank-purchased insurance.  The loss-payee is the person who gets the insurance proceeds in the event of an insured incident. She wasn’t it.

Not only was the bank’s insurance not protecting her, the cost of this insurance was inflated AND  the cost was added to what she owed the bank.

Even worse, the force placed insurance doesn’t protect her from claims by others who got hurt on the property.  She gets sued by someone who slipped on her doorstep, and she’s on her own.

Who cares about “easy” on those terms?

Two kinds of bank-paid insurance

Force-placed insurance is different from homeowner’s insurance where the cost is included in your  monthly payment.

Escrowed insurance is insurance you have selected.  It protects your interests and those of the bank.  It protects you from liability claims.

The bank writes the check, to make sure that the protection is there,  but it’s taking care of both  you and the lender.

The real scandal in force placed insurance is the inflated cost.  Not only does it protect only the bank, but the bank has no incentive to shop carefully for the best price, and, investigations suggest, the bank either owns the insurance provider or gets a kickback on the premium.  All the while, the outrageous cost of the insurance is added to the payoff of your loan.

Make sure, for insurance purposes,  you really are in good hands.

Image courtesy of Flickr and onbangladesh

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Author:Cathy Moran

Cathy is a lawyer in Northern California, where she's run her own small firm for over 30 years. A certified consumer bankruptcy specialist, Cathy pioneered the use of the Internet as a means of educating people about their debt relief options. Her clients have educated her about money.

One Response to “Your House, Your Insurance, Or Else”

  1. June 28, 2013 at 3:43 pm #

    Very helpful information – so many homeowners do not know what force placed insurance really is. Many only find out when they go to refinance.

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