Maryland Issues Consumer Advisory on ‘Force-Placed’ Insurance

The Maryland Insurance Administration recently issued a consumer advisory, reminding consumers that if they borrow money to buy a car or home and let the insurance policy lapse (cease to exist/end), the loan agreement may give the lender the right to obtain insurance for the borrower and require the borrower to pay the premium.

This type of insurance coverage is called “lender-placed” or “force-placed” insurance. Oftentimes, the premium for force-placed insurance is substantially higher than it would be if the property owner obtained coverage directly from the insurer. And even though the lender will bill the borrower for the premiums due under the policy, the coverage may only protect the lender’s financial interest in the property. Regulators offered a few tips on what consumers can do to protect themselves:

• When borrowing money to purchase a car or home, give the lender the name of one’s insurer, and give the insurer the name of the lender so the lender can be listed as an additional insured.
• When the notice of cancellation or non-renewal is received, obtain a replacement policy as soon as possible. Be sure to tell the insurer the name of any property lienholder, and notify the lender of a new insurance policy. Even if the lender has already obtained a force-placed policy, the borrower has the right to purchase a policy with a different insurer and then have the force-placed policy cancelled.

Topics Maryland