Which insurance provisions are commonly required by lenders in loan/lease documentation?

• A. It is that Borrower must maintain adequate property and liability insurance, with lender named as additional insured and loss payee, and with certificates and timely notice of cancellation.
• B. It is that Insurance is optional for the borrower.
• C. It is that Lender pays all insurance premiums.
• D. It is that Only flood insurance is required.

Answer: (A)

Protection of the lender’s security depends on the borrower carrying proper insurance on the collateral and keeping the lender directly protected in the policy. Requiring the borrower to maintain adequate property and liability insurance, with the lender named as both additional insured and loss payee, ensures the lender is covered under the policy and will be paid from the insurer if a loss occurs. Providing a certificate of insurance and ensuring the insurer gives timely notice of cancellation keeps the lender informed and able to act before a lapse occurs, preserving the loan’s collateral protection. Flood insurance matters only if the property sits in a flood-prone area or the loan terms require it; it’s not the sole or universal requirement. The borrower pays the premiums, not the lender. This combination of provisions best aligns with typical lender protections in loan/lease documentation.