Chapter P8, Problem 5RQ

To determine

The reason why mortgage lenders require homeowners to have a certain amount of homeowners’ insurance.

Explanation of Solution

Mortgage lenders require homeowners to have a certain amount of homeowners’ insurance because of the replacement cost of the property, as during any disaster or calamity, their main concern is to rebuild the property or building. And, this insurance policy provides financial protection in case of an accident.

Moreover, homeowners’ insurance protects not only the customer’s home or physical house or their belonging but also in the situation of natural calamity or even in case of damage due to the weather which can be a necessity to receive a mortgage.

Therefore, mortgage lenders require homeowners to receive a certain amount of homeowners’ insurance.

Economics Concept Introduction

Introduction: Homeowners’ insurance is a type of insurance that assist homeowners to insure their property and assets against any kind of loss or damage that happens unexpectedly such as a fire disaster.