Loss Payable Clause

A loss payable clause is a provides insurance coverage to a lender (mortgagee) when property used as security for a loan is destroyed or damaged.

This type of insurance terms can provide protection for both real property and personal property.

For example, if a house that is mortgaged is condemned due to structural problems that was not present when the property was first used as collateral, and the borrower defaults on the home loan, then the bank would be able to claim for losses up to the outstanding balance on the mortgage.

There would be no need to foreclose the property to get the money back. Anyway in such cases, there would be no house to foreclose.

Sometimes, homeowners would contend that the payment of losses should be made to them instead of the mortgagee. But repayment is the homeowner’s responsibility and it is also his responsibility to buy his own coverage for protection from such risks.

After all, loss payable clauses are provisions in policies meant to payout to third parties.

The beneficiary is not the homeowner.