Mortgagee Clause

What Does Mortgagee Clause Mean?

A mortgagee clause is a provision in a property insurance policy that ensures the insurance company will pay any claims to both the mortgagor (the property owner) and the mortgagee (the mortgage lender). Typically, this clause specifies that the mortgagee, often a bank, will still receive an insurance payout in the event of a claim, regardless of any violations made by the mortgagor. For this reason, banks often require borrowers to carry coverage from one of the best homeowners insurance companies before closing on a mortgage.

Insuranceopedia Explains Mortgagee Clause

Mortgagee clauses ensure that mortgage lenders are protected from significant losses if something happens to the property securing the mortgage. For example, if the mortgage holder accidentally causes a fire that destroys the house, the mortgagee clause ensures that the mortgage lender will be reimbursed for their loss, in addition to the mortgage holder. Without this clause in property insurance policies, mortgage lenders would be at risk of facing substantial financial losses. Lenders typically set a minimum dwelling coverage amount tied to the loan balance, so how much homeowners insurance you need is often driven by what the bank requires.