West Virginia Property and Casualty Licensing Practice Exam

The standard mortgage clause in auto insurance is known as what type of clause?

1. Loss Payable

2. Beneficiary

3. Indemnity

4. Collateral

The correct answer is: Loss Payable

The standard mortgage clause in auto insurance is referred to as a Loss Payable clause. This type of clause is designed to protect the interests of a finance company or lender when the insured vehicle is damaged or lost. By including a Loss Payable clause in the insurance policy, the insurance company agrees to pay the lender directly for any losses that occur, ensuring that the lender's financial interest is safeguarded despite any claims made by the policyholder. This clause is particularly important because it establishes that if the vehicle is involved in an accident or theft, the insurance payout will first go to the lender until the outstanding loan balance is satisfied. This arrangement allows lenders to feel secure in financing vehicles since they have a guarantee of repayment in case of total loss. Other options do not accurately define this specific clause. For instance, while beneficiary clauses typically relate to life insurance policies or policies involving specific individuals receiving proceeds, indemnity relates to the principle of compensating for loss or damage in any insurance context, not specifically tied to mortgage agreements. Collateral, on the other hand, refers to assets pledged by a borrower to secure a loan, which is more related to financial transactions than insurance clauses. Thus, the phrasing and role of the Loss Payable clause directly align with