Perils

• This type of insurance protects the bank against customer's oversights and negligence. If a customer does not pay their homeowner's insurance, and their house burns down; mortgage impairment protects the bank by reimbursing the loan balance amount. This insurance also protects the bank if the property is hurt by a flood, earthquake or other catastrophic loss; even if the customer has no insurance.
  
  

Escrowed Amounts

• In the event an escrow account is set up wrong, mortgage impairment insurance covers the mistakes and makes up the difference in amount.
  
  

Requirements

• Lending institutions carrying these policies typically must notify their customers annually, reminding them that insurance coverage is required for the duration of a mortgage. Many banks work with insurance companies and receive letters from the insurance companies notifying them of any lapses in coverage.