Insurance is often tied in with loans. Lenders will require insurance as a protective measure. Sometimes it is to protect a large investment, such with home owners insurance. Sometimes it is to protect a risky investment, such as auto insurance.

Large Investment Insurance

Lenders want insurance for large investments so that if something happens to the collateral, such as the home, they can recoup some of the loss. They also want the borrower to be protected. If something major were to happen to a home that causes total loss then the insurance will often cover the mortgage, leaving the borrower clear of that encumbrance.

Risky Investment Insurance

Risky investments are often defined as investments with collateral that depreciates in value or that has a high rate of accidents or damage. Vehicles can fit that description. Most lenders will require auto insurance for the same reason they require insurance for larger investments.

Keeping insurance payments paid can impact your loan and if you default on insurance it could require your loan principal to become immediately due.