A force-placed policy is

A force-placed policy refers to insurance coverage that a lender obtains when the homeowner's existing insurance is canceled or deemed insufficient. This type of policy ensures that the lender’s investment in the property is protected against risks such as fire, theft, and other damages, which could otherwise jeopardize the value of the collateral. Since the homeowner is responsible for maintaining insurance, lenders will step in to protect their interests if coverage is lost, thereby mitigating potential financial loss.

The definition aligns with standard industry practices whereby lenders have the right to place insurance on a property when the homeowner fails to maintain an acceptable level of coverage. This ensures that the lender retains the ability to recover losses should the property suffer damage.

Other options may contain elements related to insurance but do not accurately describe the specific nature of force-placed policies. For example, government-sponsored entities carrying insurance or force-placed policies being less expensive due to limited coverage do not directly reflect the fundamental characteristics and primary purpose of force-placed insurance.