Property Insurance Standard Mortgage Clause

What is a Standard Mortgage Clause in a property insurance policy, and why do I care?

Have you ever wondered why you have to list the name and address of your mortgage company on your home insurance policy or why someone without a mortgage gets cheaper rates? I am sure these are questions on everyone’s mind and you are all just dying to know the answer, right? Great! I am excited to share this riveting information with you!

This all comes down to the standard mortgage clause included in your contract with your home insurance company which states that even if a claim on your home insurance is denied the insurance company is still responsible for paying the outstanding balance on the mortgage/secured line of credit. You read your policy documents right? Yeah…me too!

So as an example, if you burn your own house down (arson) your insurance company will deny your claim and not rebuild your home however will pay off the outstanding balance owing to the lender. This is why all lending institutions will require this clause to be included in your insurance, removing the possibility that the lender might not get what is owed to them. What a great deal for them, and you, as you no longer have a mortgage outstanding.

But Wait!

The other interesting fact involved in this clause is the right of subrogation by the insurance company. Subrogation is the right to collect a debt or damages. Therefore the insurer has the ability to collect the amount payable to the mortgagee from the owner of the insurance policy (you). So in the example above, if you committed arson and your insurance claim was denied, the insurance company will pay the lender the balance owing and then come after you for reimbursement (via lawsuit).

So when you pay off your mortgage or don't require a lending institution when purchasing a property, you can expect your premiums to be lower due to the fact the insurance company doesn't have to follow the terms set out by the Standard Mortgage clause.

Phew, we made it through!

Questions? Get in touch with your insurance broker!