Lender-Placed Insurance Is Often Overpriced and Misapplied
What lender-placed insurance is, why it is costly, and how to correct mistakes
Lender-placed insurance, sometimes called force-placed insurance, is coverage your mortgage servicer buys on your home when it believes your own policy has lapsed or does not meet the loan requirements. It protects the lender’s interest, not yours, and it is usually far more expensive than a policy you purchase yourself. Many homeowners first learn about it when a letter arrives or when the monthly mortgage payment suddenly increases because the servicer added premium charges to the escrow account.
Why servicers place insurance
Your mortgage agreement requires you to keep hazard insurance, and flood insurance if your home is in a high risk flood zone. Servicers track coverage to make sure the lender remains protected. If they cannot verify your policy or see a gap in dates, they may buy insurance and charge you for it. Common triggers include a missed renewal, a change in carriers, a policy that dropped below the required dwelling limit, or a name or address mismatch that caused proof of coverage to be rejected. Flood cov...
Why lender-placed insurance costs more and covers less
Lender-placed policies are written to protect the property as collateral. They often exclude personal liability, personal property, additional living expenses after a loss, or other features that benefit the homeowner. Premiums are commonly higher because the policy is issued without standard underwriting and may include administrative fees. If you carry your own policy, you can usually shop for price and coverage. With lender-placed insurance, the choices are limited and you rarely control the term or...
How notices and timelines should work
Federal mortgage servicing rules require servicers to send written notices before charging you for lender-placed insurance and to cancel it promptly when you provide proof of your own coverage. Typically, you should receive an initial notice that coverage is missing or insufficient, followed by a reminder if the issue is not resolved. If you respond with valid proof that shows continuous coverage or a corrected policy, the servicer must remove the charges and refund any overlapping premium. Keep cop...
Red flags to recognize
Be alert for letters that say your policy cannot be verified even though you renewed it, sudden escrow spikes that do not match your own premium, or flood insurance notices that rely on an outdated flood zone determination. If you live in a condominium, watch for demands that ignore the association’s master policy. Misapplied lender-placed insurance can also appear after a refinance or loan transfer when paperwork is still being updated between companies.
If you already called or paid
If the servicer has already added charges, do not ignore them. Send proof of coverage right away and ask in writing for removal of lender-placed charges and a pro rata refund for any overlap. If an escrow shortage was created, ask for a corrected escrow analysis after the charges are reversed. If you paid by card or bank draft to avoid delinquency, request a reversal or credit once the servicer confirms your own policy was in force. Keep a log of calls, upload confirmations, and letters you send.
How to fix errors effectively
Start by gathering your declarations page, the full policy form, and any renewal invoice that shows the effective and expiration dates. Confirm that the mortgagee clause lists the correct lender or servicer name and your full loan number. Ask your insurer or agent to send an updated proof of insurance directly to the servicer through its preferred channel, and obtain a copy for your records. Then write the servicer a short letter marked as a Request for Information or Notice of Error under federal mo...
Special situations that cause confusion
Condominiums and townhomes often have a master policy held by the association that covers exterior structures. Your lender may still require a unit owner policy. Provide a certificate of insurance for the master policy plus your unit policy showing walls-in coverage if required by your loan. For flood insurance disputes, ask your insurer or surveyor to review the current flood map and base flood elevation. If your structure sits above the mapped flood level, a Letter of Map Amendment may help resolv...
Quick checklist
- Renew your own policy on time and keep the mortgagee clause and loan number accurate.
- Save the declarations page and ask your agent to send proof directly to the servicer.
- Open and respond to every insurance notice from your servicer.
- Dispute errors in writing and include timelines, policy numbers, and evidence.
- Request removal of lender-placed charges and a corrected escrow analysis when resolved.
Where to report problems
- NC Attorney General’s Consumer Protection Division - File a complaint if your servicer ignores valid proof or applies unfair charges.
- Federal Trade Commission - Report deceptive practices and patterns affecting consumers.
- Consumer Financial Protection Bureau - Submit a mortgage servicing complaint and track the servicer’s response.
- North Carolina Department of Insurance - Seek help with insurer or agent issues, including proof of coverage and policy disputes.
Lender-placed insurance is meant to be a last resort, not a routine expense for homeowners. When it appears on your account, act quickly, provide clear proof of coverage, and keep everything in writing. If a servicer applies it in error or refuses to correct the record, use state and federal complaint avenues to get the account fixed. Clear documentation and timely follow up can stop unnecessary charges and keep your mortgage on steady footing.