What Is Lender Placed Hazard Insurance?

As part of a borrower’s agreement with a real estate lender, the borrower will remain sufficient insurance coverage on the property. When the borrower fails to maintain insurance or purchases a policy the lender deems acceptable, then the lender must purchase lender-placed hazard insurance in order to protect their financial interest.

Does the Borrower Pay Back the Premium?

Lender placed hazard insurance is typically more costly than the premiums obtained by the homeowner. This makes it in the best interest of the borrower to maintain their own insurance, as the mortgage company will pass the cost on to the borrower. If the homeowner is still paying their mortgage on time, they’ll see their payment increase as the insurance costs placed by the lender must be absorbed.

Does Lender Based Insurance Offer the Same Coverages?

Typically, lender based hazard insurance will only cover the structure itself. It will not cover any of the homeowner’s possessions or liabilities should an accident occur. The lender is only concerned with the replacement cost of the property if it should become damaged. In this sense, the coverage does extend to the owner as far as replacing the structure is concerned.

A homeowner should maintain their own coverage of their property. Not only is it more affordable, but it protects the homeowner from liability and the loss of personal possessions.