What type of insurance is required for conventional loans to protect lenders against default?

Private mortgage insurance is crucial for conventional loans that require a borrower to provide a down payment of less than 20% of the home's purchase price. Lenders utilize this insurance to mitigate the risk associated with defaults since a smaller down payment can indicate a higher likelihood of default. By having private mortgage insurance in place, lenders are protected to some extent in the event that the borrower fails to fulfill their loan obligations.

Government mortgage insurance, on the other hand, is specifically linked to government-backed loans such as FHA or VA loans and doesn’t apply to conventional loans. Life insurance is unrelated to the property or the mortgage itself, as it primarily provides financial protection in the event of the policyholder’s death. While property insurance is essential to protect the physical structure of the home and the homeowner's belongings, it does not offer protection for lenders against borrower default on a loan.