Which term best describes the insurance often required by mortgage lenders to protect against default?

The term that best describes the insurance often required by mortgage lenders to protect against default is private mortgage insurance (PMI). When a borrower makes a down payment that is less than 20% of the home’s purchase price, lenders typically require PMI as a safeguard against the risk of default. This insurance protects the lender in the event the borrower is unable to make mortgage payments and the home goes into foreclosure, allowing the lender to recover some of their losses.

Private mortgage insurance is specifically tied to home loans and serves a purpose distinct from other types of insurance. For example, liability insurance covers legal claims against injury or damage that occur on a property, while homeowner's insurance protects the homeowner against risks associated with property damage and associated liabilities. Term insurance, on the other hand, is related to life insurance and provides coverage for a specified period. Therefore, PMI is the most appropriate term concerning the protection lenders seek when extending a mortgage to borrowers with a lower down payment.