Which policy protects lenders who take the property as collateral for a loan, with the insured amount reduced as payments are made?

• A. Standard coverage
• B. Mortgagors/borrow's policy
• C. Extended coverage
• D. Mortgagees/lender's policy

Answer: (D)

The key idea is to protect the lender’s interest in the property used as collateral. A mortgagee’s (lender’s) policy is written for the lender and covers the financial stake the lender has in the property. The coverage is tied to the loan itself, so as payments are made and the principal drops, the insured amount can be reduced to reflect the outstanding balance. This ensures the lender’s exposure remains aligned with the remaining debt. This contrasts with policies designed for the borrower’s own protection or general homeowner coverage, which do not tailor the limit to the loan balance. Therefore, the policy described is the mortgagees/lender’s policy.