When you buy a new home ore refinance your mortgage, bad credit lenders require that you show proof of acceptable hazard insurance. This protects you and the lender in case a fire or other disaster destroys your home. But what if money gets tight and you can't swing the insurance payments? Can you let the policy go until you're back on your feet? I'm afraid not; it will cost you a lot more. Your lender will make sure of that.

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When you stop paying your homeowner's insurance (also called hazard insurance), your lender will first send you warnings. Then it will acquire a new policy from another insurer and you'll be charged for it. This insurance is called a "forced place" policy, and it may cost twice as much or more than your old policy. The icky thing is that your lender may make money on the deal -- many such insurers pay the lender a referral fee or commission, typically about 15% of your annual policy price.

Mortgage servicers, once they are aware that your insurance has lapsed, warn you multiple times and urge you to obtain your own coverage at the best price you can get. If the you don't, though, servicers are required to put insurance on the property that may cost you more. Insurers say the price is more because forced-place policies are riskier for them, but the Consumer Federation of America's Bob Hunter doesn't buy it. "The forced-place insurance is slightly higher risk -- 2 percent or 5 percent," Hunter said, "but they aren't charging 2 percent or 5 percent more -- they're charging 100 percent or 200 percent more."

Hunter accuses the banks of buying insurance policies that give them the biggest kickbacks, instead of buying cheaper insurance that would save homeowners' money. "This is unreasonable because the bank is making a killing on the backs of people who are hurting," said Hunter.

Right or Wrong, You Can Prevent Excess Insurance Costs

Whether you think lenders are being greedy boogers or not doesn't matter in the short run. What matters is keeping your own costs down. What can you do if home insurance gets too expensive? First, shop ruthlessly for a cheaper policy. Online shopping sites can make this easier. Second, increase your deductible, as high as you can, at least until your finances improve. Decrease your coverage. Many make the mistake insuring the entire purchase price of their home. But the ground can't be stolen, destroyed, or blown away. So don't insure it. Finally, see if you can get a break by insuring your home with the same company that insures your car and other possessions.