Date: May 30, 2002
For more information contact: Kyle Richmond (608) 267-9336 or kyle.richmond@oci.state.wi.us

Madison, WI--Wisconsin homeowners who are paying off a home loan but let their homeowner's insurance run out should beware. "Forced-placed" insurance can cost them dearly, according to the Office of the Commissioner of Insurance (OCI).

Normal home mortgage agreements include a promise to maintain a homeowner's insurance policy on the house. Many people don't realize that if they let that insurance lapse, banks and other lenders can legally re-insure their home loan by buying insurance to replace it and making the homebuyer pay for it.

If a bank discovers there is no homeowner's policy, it will take out a special policy - "forced place insurance"--simply to cover its loan. Such policies are sold by specialized insurers that cover high risks and, therefore, charge high premiums.

"It's just smarter to go and buy your own insurance," said Rhonda Peterson, OCI senior insurance examiner. "This kind of insurance is expensive and it only covers the bank's loan."

A bank will then charge the premium costs of the new policy to the homebuyer until the loan is paid off, or homeowner's insurance is reinstated…hence the term "forced-placed" insurance. In addition, there is no liability coverage if a neighbor falls on an icy sidewalk, for example.

"People may forget to pay premiums or lose the notice," Peterson said. "Others may not be renewed and perhaps be upset with their insurer. Still, none of that is worth the extra costs of forced place insurance."

Although homeowner's insurance is readily available in Wisconsin, those who cannot find coverage can apply to the Wisconsin Insurance Plan (WIP) by calling 414-291-5353 or checking the WIP Web site at www.wisinsplan.com. WIP is a property insurance program for people who need insurance coverage but have been rejected by traditional insurers.

For more information about homeowner's insurance, get the OCI's brochure "Consumer's Guide to Homeowner's Insurance." It's available in English and Spanish at the OCI Web site at http://oci.wi.gov/pub_list.htm or by writing to OCI, P.O. Box 7873, Madison, WI 53707-7873. Contact the OCI toll-free at 1-800-236-8517 or by electronic mail at ociinformation@wisconsin.gov.