Definition - What does Loan mean?
A loan is a sum of money that is lent from one party to another with the condition that the borrowing party will repay the money plus interest by a certain date.
Insurance policies are often purchased to protect against the possibility of default when a borrower takes out a loan.
Insuranceopedia explains Loan
Mortgage insurance is a prime example of insurance that protects against losses due to a default. It is often required by mortgage lenders before giving the borrower approval for the loan.
If a mortgage borrower has mortgage insurance, they will have a certain amount of coverage in the event that they default on the loan repayment. This reduces risk for the lender.