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Hazard Insurance a U.S. Requirement to Protect Homeowners

In the U.S., the insurance on your home is commonly referred to as either Hazard Insurance or Homeowner’s Insurance. This insurance is property insurance that covers a residence, and it protects the homeowner if the property is damaged or destroyed in the unfortunate instance of a catastrophe such as a fire or severe weather, for instance. The terms of your mortgage loan or home equity line of credit require you to maintain Hazard (Homeowner’s) Insurance on the property.

What do Canadians with U.S. property need to know about Hazard Insurance?

  • It is a requirement to have that insurance coverage on your home if you have a loan secured by your home.
  • The amount of the insurance must cover any outstanding loans on the home and property or the replacement value, whichever is less.
  • Your U.S. lender must receive yearly verification that the home is covered since policies are generally good for 12 months.
  • If there is no evidence of insurance or the amount is inadequate, your U.S. lender will purchase insurance. This is commonly referred to as Forced Place Insurance.

What is Forced Place Insurance?

Forced Place Insurance allows the lender to protect their financial interest in the property. This type of coverage will likely be more expensive than the coverage you would purchase on your property, and it may provide less coverage than the policy you would have chosen independently. For example, Forced Place Insurance policies generally do not cover personal property or owner liability. Plus, the costs associated with Forced Place Insurance are added to the balance of the home equity or mortgage loan.

It is paramount to ensure that you (or your insurance carrier) provide the proof annually that the property is covered. Should your lender need to force place insurance, they are required to send you two notices before the force place insurance can be ordered. The first notice is at the time your insurance policy expires. The second notice will be sent 30 days after mailing the first notice if no proof of insurance has been provided. The third notice will be sent 45 days after the first notice if no proof of insurance has been provided. If you do not provide proof of insurance coverage within 45 days after the first notice, your lender can, and likely will, force place the insurance coverage.

Important Notes:

  • If you change insurance companies during the year, you will need to have your new insurance carrier provide verification of that insurance to your lender.
  • If your lender force places insurance but you are able to provide proof of coverage, the force placement policy will be cancelled and you can be reimbursed for the period of time in which you can provide evidence of coverage. However, if there is a lapse in coverage, the force placement insurance will be effective during the lapse in coverage.