What type of insurance might be required in addition to standard homeowner's insurance?

• A. Life insurance
• B. Private mortgage insurance
• C. Health insurance
• D. Auto insurance

Answer: (B)

Private mortgage insurance (PMI) is often required when a homebuyer makes a down payment of less than 20% of the home's purchase price. PMI protects the lender in case the borrower defaults on the loan. While standard homeowner's insurance covers the structure and contents of the home, it does not protect the lender's interest in the property, particularly if the down payment is minimal. Therefore, PMI serves as an additional layer of security for lenders, making it a common requirement in conjunction with a mortgage that includes a smaller down payment.

On the other hand, life insurance, health insurance, and auto insurance are not specifically relevant to homeownership or mortgage agreements. Life insurance provides financial support for beneficiaries upon the insured person's death, health insurance covers medical expenses, and auto insurance protects against vehicle-related risks. None of these directly address the risk associated with a mortgage loan in the way that private mortgage insurance does. Thus, PMI is the appropriate choice for additional protection related to home financing.