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Mortgage insurance is primarily designed to protect lenders in the event that a borrower defaults on their home loan. When a borrower puts down less than 20% of the home’s purchase price, lenders typically require the borrower to have mortgage insurance. This insurance reduces the lender's risk by covering a portion of their potential losses if the borrower fails to make their mortgage payments.
This coverage is essential as it allows individuals with lower down payments to qualify for loans, assisting them in becoming homeowners when they may not have sufficient savings for a larger down payment. It facilitates broader access to the housing market while managing the financial risk for lenders who extend credit.
In contrast, the other options provided do not relate to mortgage insurance. Health expenses are covered through health insurance, rental losses are generally addressed through landlord insurance, and vehicle damage is covered through auto insurance. Each of these serves different purposes in the realm of personal finance and risk management.