Mocden Insurance Consultants
Mocden Insurance Consultants
International Insurance Experts
International Insurance Experts

Mortgage Impairment Insurance

 

Mortgage Impairment Insurance protects the bank from errors made in the management of collateral or government guarantees that support a mortgage.

 

There are three parts to most policies:

 

  • Mortgage Impairment 

  

This section protects the Bank's interest in a mortgage from a physical damage loss (fire, lighning, wind, etc) as a result of "required" perils when their customer has not kept insurance in force or has not properly insured the property.

 

 

  • Mortgage Impairment Example

 

A Mortgage customer allows his homeowner's insurance to lapse. The Bank's Loan Department is not aware of the cancellation. The home burns, levelling the structure. Mortgage Impairment Insurance protects the bank's loan amount.  

 

Most polices respond to the perils (causes of loss) required of the mortgage customer. If the loan requires "fire, extended coverage, and vandalism" then the Mortgage Impairment policy responds only to those perils. The insurance responds to the coverage required by the mortgage.

 

Some policies require that the Bank track and check customer insurance policies. Some require notice to customers of the mortgage requirement to purchase insurance. Some don't require any form of tracking customer insurance policies, saving the bank a great deal of effort and administrative expense.

 

Most policies limit coverage for a set time from the date you are aware of a lapse in the insurance - usually 90 days. This allows the Bank time to place coverage in your "forced-placed" property insurance program.

 

  • Mortgagee's Errors Omissions

 

Coverage for errors in the administration of escrowed insurance premiums or in various government guarantee programs - VHA, GNMA, SBA etc. The policy may include mistakes in determining the flood map location of the property. Failure to administer property tax payments properly for the customer also is a part of many policies. 

 

  • Non-Required Perils or Balance of Perils

 

Supplements the perils covered by the first part of the Mortgage Impairment Policy. Your Mortgage's required perils may not include damage by weight of ice and snow, vandalism, pipes freezing, water damage and building collapse. Coverage can also be included here for flood and earthquake.