Forced Place Insurance

AAA

DEFINITION of 'Forced Place Insurance'

The insurance that a lien holder places on a property, to provide coverage in the event the borrower allows coverage to lapse. Forced place insurance is intended to ensure that the property remains insured, protecting both the homeowner and the lien holder. The costs associated with forced place insurance are paid upfront by the lien holder, but added to the balance of the lien. Due to the relative ease of abuse resulting from forced place insurance, there are specific provisions in the Dodd-Frank Act that require forced place insurance to be "bona fide and reasonable."

INVESTOPEDIA EXPLAINS 'Forced Place Insurance'

Forced place insurance has drawn insurance, because it is easy to abuse, particularly when the loan servicer owns the insurer. Loan servicers, for example, have been found to allow one policy to lapse only to replace it with another, more expensive policy. In these cases, the loan servicer could receive large cash incentives or kickbacks from the insurer, as compensation for giving it the policy. In addition, forced place insurance policies have been known to be back-dated, to collect for premiums for periods of time that have already passed.

RELATED TERMS
  1. Private Mortgage Insurance - PMI

    A policy provided by private mortgage insurers to protect lenders ...
  2. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  3. Property Insurance

    A policy that provides financial reimbursement to the owner or ...
  4. Mortgage Insurance

    An insurance policy that protects a mortgage lender or title ...
  5. Lender-Paid Private Mortgage Insurance

    Private mortgage insurance that a mortgage lender pays on behalf ...
  6. Disaster Loss

    A special type of tax-deductible loss, similar to a casualty ...
RELATED FAQS
  1. What is PMI, and does everyone need to pay it?

    Also known as "Primary Mortgage Insurance," PMI is the lenders (banks) protection in the event that you default on your primary ... Read Full Answer >>
  2. How does the risk of investing in the insurance sector compare to the broader market?

    Due to economic, demographic and interest rate trends, there is less risk when investing in the insurance sector compared ... Read Full Answer >>
  3. What economic indicators are important to monitor when investing in the insurance ...

    Inflation and interest rates are the best economic indicators to monitor when investing in the insurance sector. Unlike with ... Read Full Answer >>
  4. Why do some companies in the insurance sector engage in reinsurance?

    Some companies in the insurance sector engage in reinsurance because they want to reduce risk. Reinsurance is basically insurance ... Read Full Answer >>
  5. Why is the insurance sector considered a low-risk investment?

    Historically, the insurance sector has enjoyed modest returns and perceived safety. It's been a favorite for investors who ... Read Full Answer >>
  6. What price-to-book ratio is considered average in the chemicals sector?

    You can use Microsoft Excel to calculate the loan-to-value ratio if you have the mortgage amount and appraised value of a ... Read Full Answer >>
Related Articles
  1. Personal Finance

    Understanding Your Mortgage

    We walk through the steps needed to secure the best loan to finance the purchase of your home.
  2. Home & Auto

    6 Reasons To Avoid Private Mortgage Insurance

    This costly coverage protects your mortgage lender - not you.
  3. Home & Auto

    How To Outsmart Private Mortgage Insurance

    It's possible to use a second mortgage to avoid this fee, but is it in your best interest?
  4. Credit & Loans

    Understanding The Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  5. Professionals

    An Advisor's Guide to Prof. Liability Insurance

    A guide to what financial advisors need to know about professional liability insurance.
  6. Insurance

    India's Two-Child Policy

    As of 2014, 11 Indian states have passed laws to restrict Indian citizens from having no more than two children.
  7. Economics

    What Does Asymmetric Information Mean?

    Asymmetric information describes a situation where one party in a transaction knows more than the other.
  8. Fundamental Analysis

    How to Calculate a Combined Ratio

    Combined ratio is a formula used in the insurance industry to measure the performance of an insurance company.
  9. Insurance

    Explaining Insurance

    Insurance is a form of contract between an individual and an insurance company that spreads risk in exchange for premium payments.
  10. Economics

    How Big Data Has Changed Insurance

    No longer confined to technology, big data has become integral to providing solutions to the insurance industry's long standing challenges.

You May Also Like

Hot Definitions
  1. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  4. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  5. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  6. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
Trading Center