Insurance Policy Glossary

  • Insurance Policy GlossaryDefault: A mortgage is in default when a borrower does not make mortgage payments on time. After being in default for several months, the lender can begin a foreclosure process on the property. Default also occurs if the borrower does not adhere to specifications in the contract, even if payments are made.
  • Loan value: Loan value is how much your mortgage is worth. Loan value, also commonly referred to as loan-to-value-ratio (LTV), is expressed as a percentage. You can calculate your mortgage’s loan value by dividing the amount of your loan by your property’s worth.
  • Loss: Loss to a mortgage lender occurs when a borrower fails to make agreed-upon monthly mortgage payments. In many cases, a lender may be willing to adjust monthly payments in the event of a loss to avoid going into default.
  • Risk: Risk in this context is defined as the likelihood of a borrower making mortgage payments in a timely manner. Someone who has a low income, poor credit score, and/or small down payment will be deemed at a greater risk of not paying as agreed than someone with the resources to pay off the mortgage.
  • Limit: A limit is a restriction on the amount of something. For example, there are limits on the value of a mortgage that an insurance company will insure. Particular limits will vary due to factors such as geographic location and income.
  • Liability: A liability is something that costs money or requires payment. For example, debts and bills are liabilities. Your mortgage, insurance payments, utility bills, credit card payments and interest, and car payments are all liabilities. Money owed to investors is your lender’s liability.
  • Depreciation: Depreciation is defined as something decreasing in value. Your property can depreciate due to a variety of factors, such as the condition of the neighborhood or damage to a building. Depreciation can negatively affect your loan-to-value ratio because while your property’s value goes down, your loan value remains constant.
  • Premium: A premium in this context is how much you pay for insurance. A borrower pays premiums based on a schedule, usually yearly or monthly. Some types of mortgage insurance premiums are added to your loan, in which case the insurance premium becomes part of the monthly mortgage payment.
  • Rider: A insurance rider, sometimes referred to as an endorsement, is anything added to the policy that specifies conditions not set forth in the basic policy. A policy can have one or many riders, or may have none at all.
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