What is a key characteristic of mortgage insurance?

What is a key characteristic of mortgage insurance?

• A. It protects property against theft.
• B. It pays for repairs related to flood damage.
• C. It covers the balance of a mortgage if the insured dies.
• D. It provides coverage for natural disasters.

Answer: (C)

Mortgage insurance is specifically designed to protect lenders in the event that a borrower defaults on their mortgage payments, typically due to unforeseen circumstances, which could include the death of the borrower. This insurance often covers the outstanding balance of the mortgage, ensuring that the lender is compensated even if the premiums stop due to the borrower's death. This aspect is essential in providing financial security for lenders, as it reduces their risk associated with issuing loans to homebuyers, especially those who might not have a significant down payment. The other options relate to different types of insurance coverage, such as property insurance against theft, flood damage repairs, or coverage for natural disasters. Each of these serves distinct purposes but does not align with the specific function of mortgage insurance, which is centered on safeguarding the lender's investment in the event of the borrower's untimely death.

Mortgage insurance is specifically designed to protect lenders in the event that a borrower defaults on their mortgage payments, typically due to unforeseen circumstances, which could include the death of the borrower. This insurance often covers the outstanding balance of the mortgage, ensuring that the lender is compensated even if the premiums stop due to the borrower's death. This aspect is essential in providing financial security for lenders, as it reduces their risk associated with issuing loans to homebuyers, especially those who might not have a significant down payment.

The other options relate to different types of insurance coverage, such as property insurance against theft, flood damage repairs, or coverage for natural disasters. Each of these serves distinct purposes but does not align with the specific function of mortgage insurance, which is centered on safeguarding the lender's investment in the event of the borrower's untimely death.