What is Forced Place Insurance?

In July of this year, news agencies announced Wells Fargo forced unwanted car insurance on 500,000 to over 800,000 of its car loan customers, most of whom had valid car insurance. The type of insurance used is referred to as forced place or lenders insurance. The results of this practice were devastating; 274,000 of Wells Fargo’s customers were forced into delinquency and 25,000 vehicles were wrongfully repossessed. Wells Fargo reaped millions in revenue and fees from this practice.

Forced place insurance is written by the lender when a borrower has a lapse on their car, boat, RV, or home policy. It’s designed to protect the lender in the event of a loss and is usually written with enough coverage to pay off the loan. This policy isn’t a gift; the cost of a forced place insurance policy is rolled into the monthly payment the borrower makes. If the borrower refuses to pay the new amount, the asset is repossessed.

Forced place insurance on a car means the policy provides much less in coverage than a standard car policy.

  • It may or may not extend liability coverage to the car you hit if you’re at fault in the accident.
  • There is no medical or personal injury protection coverage for you if you or a passenger are injured.
  • There’s no rental car reimbursement or roadside assistance coverage.

In the case of home, condo, flood and wind versions of force placed insurance:

  • These policies protect the home up to the value of the loan.
  • If there’s a total loss, the loan is paid off but the borrower is left holding the bag for everything else.
  • There’s no coverage for contents or personal property.
  • There’s no liability or medical coverage.
  • There’s no coverage for loss of use.

The purpose of lender placed insurance is to recoup the money they’ve loaned the borrower for the lost property.  The borrower may still be liable for medical charges, repairs to another person’s vehicle, demolition of a home, and debris removal.

Forced place insurance is expensive too, costing anywhere from the same as a standard policy to twice as much. In a few instances, it may cost as much as 10 times the cost of a policy from a standard carrier.

The good news is borrowers may replace forced place insurance with their own coverage simply by obtaining a policy from the company of their choice. I’ve replaced several forced placed insurance policies with real car and home insurance.  In all but one instance, the savings were huge.  In that case, the client wound up paying about $100 more a year, but they considered it a bargain once they understood how little the lender’s insurance policy covered.

I understand the need lenders have in writing these policies, but individuals don’t have to be stuck with it. Do you have a question, comment or experience you’d like to share?  Share them with me my Facebook, Google +, and LinkedIn pages.  I’d love to hear from you!

Thanks!

Ed Wise

Wise Insurance Group

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