What Is Lender-Placed Insurance and Why You Should Care

Homeowners insurance is required for anyone with a mortgage. If your policy lapses, is canceled, or your servicer cannot confirm that you have active coverage, the lender may purchase a policy on your behalf. This is called Lender-Placed Insurance (LPI), often referred to as force-placed insurance.
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What Lender-Placed Insurance Actually Is
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LPI primarily protects the lender’s financial interest, not the homeowner. These policies are typically more expensive than standard homeowners insurance and usually provide more limited coverage.
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• It generally covers only the structure, not your belongings, loss of use, or personal liability.
• The servicer, not the homeowner, chooses the carrier, coverage terms, and pricing. 
• The cost is billed to you and is often collected through your escrow account as part of your mortgage payment.
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Why LPI Happens
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LPI is placed when a mortgage servicer cannot verify that your homeowners insurance is active. 
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This can happen if a policy lapses, is canceled, or is non-renewed, but it also happens for far simpler reasons. Examples include switching carriers without sending updated documents, renewal notices that do not reach the servicer, or mismatched or incomplete records that appear as a gap in coverage
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How LPI Affects Your Mortgage Payment
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LPI has an immediate financial impact because the premium is substantially higher than a standard homeowners policy and is charged directly through your escrow account.
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Once the servicer adds LPI, your monthly mortgage payment increases to cover the cost. If the servicer determines there was a lapse in coverage, the LPI policy may be applied retroactively, which can create an escrow shortage and trigger another payment increase.
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The result can be higher costs for coverage that is generally more limited. 
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How to Prevent LPI
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1. Maintain continuous homeowners insurance coverage - short lapses, even accidental ones, can trigger LPI.
2. Notify your servicer right away if you switch carriers - send your new declarations page and request confirmation that it’s been added to your file.
3. Verify that renewal documents are sent on time - most insurers send them automatically, but delays can happen, especially in high-risk or rapidly changing markets.
4. Watch for notices from your servicer - servicers send multiple requests for proof of insurance before placing LPI. Missing these notices is one of the most common causes of unintended placement.
5. Keep your contact information updated - incorrect mailing addresses or outdated emails can prevent you from receiving time-sensitive insurance requests.
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What to Do If LPI Is Already on Your Loan
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If LPI has been placed, it can usually be corrected.
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Start by confirming whether your policy is active. If it is, request updated proof of coverage from your insurer. If it has lapsed, obtain a replacement policy as soon as possible. Submit the required documentation to your servicer and follow their process for removing LPI.
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Once the servicer verifies that the policy meets loan requirements, they must cancel the LPI and adjust your escrow. If you had valid insurance during the billed period, you can also request refunds or credits for any overlap.
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Conclusion
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LPI typically costs more, provides more limited coverage, and may put borrowers at a disadvantage. Staying insured, reviewing renewals early, and confirming your servicer has your updated policy are the most reliable ways to avoid it.
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As insurance markets shift, timely documentation and easy servicer verification matter more than ever. Working with the right licensed insurance provider can help you stay informed and avoid unintended coverage gaps.
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