In the event of a claim on a mortgaged policy, who receives the payout?

In the context of a mortgaged life insurance policy, the mortgagee is the correct recipient of the payout in the event of a claim. The mortgagee refers to the lender, typically a bank or financial institution, that holds the mortgage on the property.

When a life insurance policy is taken out on the life of someone who has a mortgage, often the lender is named as a beneficiary to ensure that the outstanding mortgage balance can be paid off in the event of the policyholder's death. This arrangement protects both the lender's investment and the borrower's estate from the burden of remaining debt at the policyholder's passing.

If the payout were directed to the mortgager (the borrower) or the beneficiaries of the deceased, this could potentially leave the mortgage balance unpaid, which could lead to foreclosure on the property. The estate of the deceased may handle other financial obligations and distributions, but specifically for the mortgage repayment, the mortgagee receives the insurance payout directly. This structure secures the lender's interests in the property financed by the mortgage.