Texas General Lines — Property and CasualtyProperty and Casualty Insurance BasicsMedium
A commercial property policy includes a provision that ensures any loss payment for the building will be made jointly to the insured and their mortgage lender. This clause protects the lender's financial interest in the property. What is this provision called?
- ANo Benefit to Bailee
- BStandard Mortgage Clause
- CLoss Payable Clause
- DAssignment Clause
Show answer & explanationAnswer & explanation
Correct answer: B. Standard Mortgage Clause
The Standard Mortgage Clause protects the mortgagee's (lender's) interest in real property by ensuring they are paid for covered losses, even if the insured violates policy conditions, and requires notification of policy changes or cancellation.
Why the other options are wrong
- A. The No Benefit to Bailee clause prevents a bailee from benefiting from the insured's policy.
- C. A Loss Payable Clause is similar but typically applies to personal property and offers less protection to the lender.
- D. The Assignment Clause deals with transferring policy ownership, not protecting a lender's interest.
Standard Mortgage Clause
A policy provision found in property insurance that protects the interest of the mortgagee (lender) in the insured property, ensuring they receive payment for covered losses even if the insured breaches policy conditions.
- Protects lender's interest in real property
- Lender's coverage is separate from insured's
- Requires notice to lender for cancellation or material change
Memory trick: Mortgagee Clause: Mortgage lender gets paid, protected.