What is it?
Most lenders will require that you have insurance for any property you finance. If you don't prove you have it, your lender will cover the property with their insurance. This is called force-placed or lender-placed insurance.
Why your lender will require it
If your financed property gets damaged or destroyed, lender-placed insurance pays your lender. Without it, they might not be able to get their money back.
Who provides it
This coverage protects your lender, not you, from loss.
If you borrow a loan without your own coverage, lenders consider you a higher risk. Premiums for lender-placed insurance usually cost much more than premiums for your own coverage. Lenders pass these costs to you by increasing your loan payments.
How to avoid it
Buy your own insurance and add your lender to it as a lien holder. Then you or your insurance agent can send your lender a copy of your policy declarations page. This proves you have insurance and shows you’ve listed them as a lien holder.