You have heard the term "mortgage company imposed" insurance. The term "insurance" is included in the phrase but have you ever consider what that policy covers?
If the mortgage company is purchasing insurance and passing that expense to the owner/mortgagee, one may assume that the coverage is consistant to the traditional policy. With the LARGE expense passed to the mortgagee, all parties may think that this policy offers coverage equal to or greater than the traditional policy.
REALITY: Investigate deeper. More often than not, the mortgage company imposed policy only insures the mortgage company's interest. Don't confuse Property Insurance with PMI coverage. PMI coverage inherantly does not cover normal "Perils" (Fire, Wind, Hail, etc.) If the home burns, the Imposed policy will often only have coverage consistant to the loan value. Liability coverage to the owner/mortgagee or replacement coverage is NOT an aspect traditionally extended in a Imposed policy.
So when you have an investor or a homeowner say "I'm well covered... I'm paying for the mortgage company imposed policy" have a heart to heart with them... They will thank you for the insight.