What method protects a secured lender's interest in financed property under an owner's policy?

What method protects a secured lender's interest in financed property under an owner's policy?

• A. Naming the lender on the owner's policy
• B. Requiring a separate lender's policy
• C. Increasing deductible
• D. Canceling the policy

Answer: (D)

When a property is financed, the lender needs assurance that the policy will protect the collateral interest. This is done by including a mortgagee clause that names the lender on the homeowners policy, which ensures loss payments are directed to protect the lender’s lien. This can be accomplished by naming the lender on the owner’s policy, or by requiring a separate lender’s policy that covers the lender directly. Increasing the deductible reduces the insured’s coverage and doesn’t specifically protect the lender, while canceling the policy would leave the lender without protection. So, the lender’s interest is protected by naming the lender on the owner’s policy (or by issuing a separate lender’s policy).

When a property is financed, the lender needs assurance that the policy will protect the collateral interest. This is done by including a mortgagee clause that names the lender on the homeowners policy, which ensures loss payments are directed to protect the lender’s lien. This can be accomplished by naming the lender on the owner’s policy, or by requiring a separate lender’s policy that covers the lender directly. Increasing the deductible reduces the insured’s coverage and doesn’t specifically protect the lender, while canceling the policy would leave the lender without protection. So, the lender’s interest is protected by naming the lender on the owner’s policy (or by issuing a separate lender’s policy).