Which type of policy is typically designed to cover a mortgage lender's interest?

Lender-placed insurance, also known as mortgage insurance, is specifically designed to protect a mortgage lender's financial interest in a property. When a borrower fails to maintain adequate insurance coverage on the home, the lender has the right to place insurance on the property to ensure that their investment is safeguarded. This type of policy is often more expensive and provides coverage only for the lender, rather than the homeowner. It primarily addresses the lender’s need to recover losses in the event of property damage, thereby securing the outstanding mortgage balance.

In contrast, term insurance primarily provides death benefits and is usually associated with life insurance, not directly linked to mortgage concerns. Comprehensive insurance generally refers to automobile insurance that covers damages unrelated to collisions rather than property ownership. Liability insurance focuses on protecting individuals or businesses from claims arising from injuries or damages to others but doesn't cover a lender’s interest in a mortgage scenario. Therefore, lender-placed insurance or mortgage insurance emerges as the most appropriate type of policy to cover the interests of a mortgage lender.