What does a mortgagee clause in a Homeowner's Policy protect?

A mortgagee clause in a Homeowner's Policy is designed specifically to protect the lender's interest in the property. When a borrower takes out a mortgage to purchase a home, the lender (mortgagee) has a financial stake in the property until the debt is repaid. The mortgagee clause ensures that the lender receives payment in the event of a loss to the property, such as from fire or other covered perils, before any remaining funds are disbursed to the homeowner.

This clause is important because it helps the lender maintain their investment in the property by guaranteeing that they will be compensated for any damage or total loss, thereby minimizing their financial risk. While other aspects of homeowner insurance cover personal belongings or liabilities, those do not specifically address the lender's financial interest in the property, which is the primary purpose of the mortgagee clause.