What type of insurance is intended to provide indemnification to a lender if a borrower fails to make required payments?

Mortgage guaranty insurance is designed specifically to protect lenders in the event that a borrower defaults on their mortgage and fails to make required payments. This type of insurance provides indemnification to the lender, allowing them to recover a portion of the losses they incur as a result of the borrower’s non-payment. It is particularly important in situations where the borrower has a low down payment and the lender faces a higher risk.

In contrast, guaranteed auto protection generally covers the gap between the amount owed on a vehicle and its actual cash value in the event of a total loss, whereas personal property insurance protects the contents of a home from damages due to various risks. Comprehensive health coverage relates to medical expenses and does not address loan repayment scenarios. Therefore, mortgage guaranty insurance is the only option that directly aligns with the function of providing security to lenders against borrower default.