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Lender-placed insurance may be risky for consumers

In some ways, insurance is like taxes. Most of us would prefer not to have to carry coverage or fork over hard-earned income to government, whether it's to Bloomington, Hennepin County or the state. That's not the way Minnesota law works, however. Certain insurance policies and tax payments are required. It's not just for the protection of individuals, but also for the good of the society generally.

Consumers usually can take advantage of provisions in the laws to minimize their taxes. When it comes to getting insurance, they can shop around for the best deal. The main issue then might be that the insurer fails to act in good faith on a claim.

One form of insurance can pose an unwarranted risk to consumers, according to many experts. It's called lender-placed or force-placed insurance. A home mortgage lender might insist on requiring such a policy before signing off on a loan as a way of protecting its own interests.

State regulators have a problem with this kind of insurance. They don't deny lenders the right to protect their investments, but lender-placed policies come up short on a few fronts. They often cost a great deal more than a typical policy while providing less coverage than a consumer expects. Perhaps most disconcerting is that while the policies benefit the lender, the borrower has to foot the bill.

Those concerns recently prompted the Minnesota Department of Commerce to go after the nation's main provider of such policies. Under a negotiated settlement, the company will have to lower premiums by more than half, pay $5 million in penalties and make refunds to tens of thousands of Minnesota homeowners.

That has to be good news for those who will reap the benefits. Whether the insurer is as forthcoming with coverage when handed a valid claim is something to worry about another day. Anyone believing they are a victim of insurance bad faith can learn what rights they have and protect them by consulting an experienced attorney.

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