In some cases,lenders require that borrowers obtain default insurance.The purpose of such insurance is to:

Question

Quizplus · Accepted Answer

The purpose of default insurance is to protect the lender from losses associated with borrower default on the loan. In case the borrower defaults on the loan, the insurance provider pays the outstanding amount to the lender. This reduces the risk for the lender and enables them to offer loans at a lower interest rate. Therefore, option D is the correct choice. Option A is incorrect because default insurance does not decrease the effective interest rate on the loan for the borrower. Option B is incorrect because default insurance does not increase the value of the underlying property. Option C is incorrect because default insurance does not protect the borrower from defaulting on the loan.

In Some Cases,lenders Require That Borrowers Obtain Default Insurance