3 Reasons To Avoid Creditor-Placed Insurance
When you purchase a home, one of the agreements you make with your lender is to keep a homeowner’s insurance policy. Times of hardship do occur, especially during a pandemic when many businesses are being forced to close their doors for good.
However, even during hard times, it’s important to keep your homeowner’s insurance policy paid. If you don’t, your lender will have to purchase coverage to protect their financial interest in the property. Here are three reasons that could be devastating to you.
1. It’s More Expensive
When the mortgage company is forced to purchase creditor placed insurance on a home, the premium paid for the coverage is significantly more expensive than if the homeowner was paying for the policy. Your mortgage company isn’t going to be too concerned with the cost, because the expense is going to be passed on to the homeowner in the mortgage payments. Either way, you’re going to end up paying for a policy that protects your home from disaster.
2. Your Personal Belongings Aren’t Covered
Because the mortgage company is only concerned with their investment, they won’t purchase a policy that covers anything beyond that. This means if the home were to burn down, the insurance would only cover the cost to rebuild the home.
It won’t cover the homeowner’s liability if someone is harmed in the fire and it won’t cover the homeowner’s possessions that also perished in the fire. Not having homeowner’s insurance is a huge risk to the homeowner.
3. Your Financial Situation Risks Becoming Worse
Because creditor placed insurance premiums are so much more costly than a homeowner’s policy, if the homeowner is already in financial turmoil, this can make the situation even worse. If the homeowner couldn’t pay their own policy, how can they afford the new and more expensive policy?
For those that can’t, this could possibly lead to a situation in which they choose between keeping the home or feeding the family. The property could end up in foreclosure and the homeowner will have to contend with credit issues that will last for many years.
For these reasons, it’s always imperative that a homeowner maintains their homeowner’s policy. There is nothing gained to the homeowner when the mortgage company must purchase coverage for the property. In fact, it could lead to a devastating loss. If you’re struggling with maintaining your homeowner’s insurance, always ask for help before allowing it to lapse.