What type of policy protects lenders against title defects?

A loan policy is designed specifically to protect lenders from title defects that could affect the validity of their mortgage. This type of title insurance coverage ensures that if any issues arise regarding the title after the loan has been issued—such as liens, encroachments, or ownership disputes—the lender is safeguarded against financial loss.

Lenders typically require this policy as a condition for providing financing because it offers them reassurance that their investment is secure. The coverage generally extends until the mortgage is paid off, thus maintaining the lender's interest in recovering their principal should any title issues surface.

In contrast, an owner policy is meant to protect the homebuyer’s interests in the property itself, covering them against similar title defects, but it does not offer the same level of protection to the lender. A standard policy and a comprehensive policy are terms used in different contexts, but they do not specifically refer to the lender's protection under a title insurance arrangement. The loan policy is uniquely tailored for that purpose, making it the correct answer.