What is the purpose of the Mortgagee Clause in a property policy?

• A. It adjusts the insured's own loss on the dwelling
• B. It protects the lender's rights to insurance proceeds
• C. It sets the deductible for the policy
• D. It defines the insured's liability limits

Answer: (B)

The main idea here is that a Mortgagee Clause protects the lender’s financial interest in the property. It names the lender (the mortgagee) as a protected party on the policy, so if the property suffers a covered loss, the insurance proceeds are available to satisfy the loan balance and protect the lender’s security interest. This ensures the lender can recover what is owed even if the borrower loses rights to the claim or if there are issues with the borrower’s policy. It also typically gives the lender notice of changes to the policy, such as cancellations, so the loan remains protected. This is separate from adjusting the insured’s own loss, setting a deductible, or defining liability limits, which are governed by other parts of the policy.