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Understanding Lender Placed Insurance

What is Lender Placed Insurance?

Lender placed insurance is insurance coverage obtained by a home loan provider to protect its security interest in the property. The requirements to maintain adequate insurance coverage apply to lenders as well as borrowers. A lender placed insurance policy covers the dwelling or structure only and does not provide any coverage for your personal contents or any liability. Because lender placed insurance is purchased without a physical inspection of the property, the policies are more expensive than voluntary policies.

Lender Placed Insurance Requirements

When you signed your original loan documents at closing, you also agreed to maintain certain insurance coverages on your home throughout the life of the mortgage loan. These insurance coverages protect both you as the property owner as well as the lender. You have the legal right to purchase an insurance policy from an insurance company or agent of your choice; however, the policy must meet certain specified criteria.

These key requirements include:
  1. The amount of coverage or policy limit
  2. The financial strength of the insurance carrier
  3. The allowable deductible

Although these are the most common requirements for a homeowner’s insurance policy, other criteria may also be required. Types of insurance coverage also vary depending on the location of your home. In addition to Homeowner’s Insurance, other types of coverage may include Fire, Windstorm, and Flood.

Lenders typically require copies of all insurance documents for your property every year, and they will monitor and review your loan to ensure that adequate proof of insurance has been received. It is therefore important to ensure that your insurance carrier or agent list the mortgagee clause accurately, so that the annual renewal documents will be mailed to the correct address. If for some reason your lender does not receive acceptable proof of insurance, or the insurance becomes inactive, the lender placed insurance process will begin.

What happens when the Lender Placed Insurance process begins?

If your insurance policy does not meet the requirements of your lender, or if you do not have a current insurance policy, the lender placed insurance process will begin with a series of written notices informing you of the pending lender placed activity. These notices provide instructions on how to correct the insurance policy issue, advise you of the pending lender placed action, and encourage you to purchase your own voluntary coverage. If your loan is with Santander Bank, you should contact us immediately. Since lender-placed coverage can be more expensive for you than conventional insurance coverage, most lenders, including Santander, want to avoid the lender-placed process.

Federal law and your mortgage documents authorize your lender to purchase insurance coverage. Upon doing so, a notification letter and the new lender placed insurance certificate will be sent to you. You have 45 days from the initial notice to act regarding your insurance coverage. This may include purchasing a new policy, modifying your policy to meet requirements, or providing proof of insurance. If you contact your lender within the required time frame, they will work with you to verify the insurance that you have already purchased meets standards. If so, lender placed insurance is not required.

What will happen if I don’t take action?

If you do not already have an escrow or impound account, one will be established to begin collecting additional monthly funds for the payment of the current and future insurance premiums.

If you do provide evidence of adequate insurance after the lender placed policy is active, your lender will cancel the replacement insurance as of the day that your policy is effective. A refund will be issued for the period of time that both the lender placed insurance policy and your policy were in effect. The escrow account and monthly mortgage payment will then be adjusted accordingly, and in the case where an escrow account was added solely to collect funds to pay the lender placed insurance, it would now be removed.

This article is just a general overview of the lender placed insurance process. However, each situation is unique. Please contact our Insurance Department - our experienced representatives are available to guide you through the process and answer questions unique to your situation. Contact a Customer Service Center Advisor at 855-241-5699 from 8 a.m. to 5 p.m. ET, Monday through Friday. Please note that this information is intended for Santander customers in the United States; different rules and regulations apply to our customers outside of the United States.

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