What is a Standard Mortgage Clause

If you have a home or business insurance policy you may have seen the words, "standard mortgage clause". What is this?

The standard mortgage clause is to protect the interests of the mortgage holder and lay out the terms of the insurance in regards to the rights of the mortgage holder.

If you are the named insured on the policy and you have a mortgage then certain protections need to be in place and stated in clear language. This protects the owner of the building and the occupant.

If the building becomes vacant, unoccupied or develops a hazardous condition then the insurer has to be notified within 30 days. It also has to be agreed that if this situation causes a rate increase that this rate increase is paid.

If there is a claim then the mortgage holder's financial claim is protected. Whatever money is available in the claim gets paid to the mortgage holder first then whatever is left is made available to the named insured - the person or the business.

A standard mortgage clause allows for the mortgage holder to give the proof of loss if for some reason the insured is unable to do so.

If the person who has the insurance policy goes into foreclosure before the expiry of the policy then the property can continue to be insured by the mortgage holder. This extends the protection but will likely result in a rate increase due to a change in conditions - vacancy or unoccupied.

Insurance always has conditions and so does the standard mortgage clause. The insurance company needs to be informed about changes that increase the possibility of a loss and this must be done within 30 days. Of course, the mortgage holder has to have knowledge of the change.

Talk to your insurance broker or agent about any part of your property insurance that you do not fully understand. You do not want an unpleasant surprise at the time of a claim. Like all type of insurance you need to have control so as for help if you need it.