Many people don’t understand what it means when your mortgagee or lender places coverage on your property because you have failed to provide proof of coverage. With everyone’s hectic lives, you may think of it as a convenience to you, since the cost can then be added to your monthly payment. And then, you don’t have to think about it anymore. However, realize that when a lending institution places the coverage “for you,” that coverage ONLY protects the lending institution. You have NO coverage to protect your interest in the property or equipment insured. If you owe $120,000 on the mortgage for a building, the insurance will only pay the mortgagee for what you owe. You have no coverage for the remaining equity in the property, your contents in the building, nor do you have any liability coverage for you.
Most commonly, we see this with homeowners. They think the bank is “handling” their insurance, when in fact; the bank is only covering their interest in the structure. For example, to replace your home would be $200,000, and you have a mortgage balance of $75,000. The bank placed coverage only covers the $75,000. There is no coverage to protect your equity in the home, or to replace the house should there be a covered claim. There also is no coverage for your contents in the home, and no liability coverage to protect you in the case of personal liability (someone slips & falls on your steps – sues you for negligence, for example). And, the cost is typically more annually than you would pay for a homeowners policy that would adequately protect both your interests & the lender.
Do not confuse this with an escrow account, where your mortgagee or lender collects funds monthly to pay your homeowners policy & your property taxes. The above scenario occurs when you don’t have a homeowner’s policy in your name. It could also be a commercial property you own or equipment that you own or lease for your business. You pay dearly for this “convenience,” typically 30-40% more than you would pay for your coverage. And the lender-placed coverage doesn’t protect your interest or ownership at all.
Take a few minutes & call your local independent agent to get a quote. You will be glad you did!