Loan

What Does Loan Mean?

A loan is a sum of money lent from one party to another, with the agreement that the borrowing party will repay the amount borrowed, plus interest, by a specified date.

Insurance policies are often purchased to protect against the risk of default when a borrower takes out a loan. Auto loans work the same way. Lenders typically require comprehensive and collision coverage, and borrowers who owe more on the car than it is worth often add standalone GAP insurance to cover the difference after a total loss.

Insuranceopedia Explains Loan

Mortgage insurance is a key example of insurance that protects against losses caused by a borrower defaulting on a loan. It is often required by mortgage lenders before approving the loan.

If a borrower has mortgage insurance, it provides coverage in the event of default on loan repayment, reducing the risk for the lender. Borrowers also commonly buy term life insurance sized to cover their remaining mortgage balance, so the loan can be paid off if they die before the term ends.