What is a "force-placed insurance" policy?

A "force-placed insurance" policy is specifically a type of insurance that lenders obtain on behalf of borrowers who have failed to maintain their own insurance coverage on the property securing a loan. This situation often arises when a borrower does not provide proof of insurance or lets their existing policy lapse.

The primary purpose of force-placed insurance is to protect the lender’s interest in the property; since the lender has a financial stake, it requires adequate coverage to mitigate risk. This insurance typically covers the structure itself but does not protect the borrower's personal property or belongings.

In this context, the other options do not accurately describe what force-placed insurance is. Personal property insurance purchased by a borrower does not involve lenders’ actions regarding borrowers' coverage levels. Insurance policies that automatically renew pertain to the terms of coverage rather than the lender’s role. Lastly, while insurance covering businesses during natural disasters is a valid type of insurance, it does not relate to the nature of force-placed insurance, which is specifically about lender-initiated policies due to borrower negligence in maintaining their own coverage.