Force-placed insurance [also known as collateral protection insurance (CPI), lender-placed insurance (LPI), and lender-placed policies (LPP)] is a proprietary form of insurance that is placed by a loan tracker when the property owner defaults on insurance payments.
Real-estate owned (REO) insurance is another form of LPI that’s placed on foreclosed homes to cover the bank’s assets.
It’s also often used to force a property into foreclosure or reposession due to the extremely high cost (upwards of 10x normal policy premium) and backdating. As a whistleblower, I worked with agencies like the Consumer Financial Protection Bureau (CFPB) and New York Department of Financial Services (NYDFS) to try and stop this predatory practice.
This insurance only covers the loan, not the property. It theoretically can cover fire, flood, and wind, although good luck actually filing a claim on it. You’re unlikely to get the insurance company to ever pay out a claim because it’s the same company paid to service your loan. They’re trying to make profits – not help you.
When I was working in the force-placed insurance industry, it was common to see LPI policies backdated and push people into foreclosure. I did what I could to stop it as a whistleblower, but working alone to fight a wealthy industry was ultimately fruitless.