Definition
This is the title insurance policy that protects your lender's investment in the mortgage. Unlike the owner's policy that protects you, it only covers the lender's interest. Lenders always require it.
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The lender's title policy is issued as a condition of the loan and protects the lender's investment in the mortgage. Unlike the owner's policy that protects the buyer, the lender's policy only protects the lender's interest. As the borrower pays down the loan and the lender's interest decreases, the policy's coverage value decreases proportionally. The lender's policy is required by all institutional lenders and the cost is typically paid by the buyer.
Pro Tip
The lender's policy protects the lender, not you. Always get an owner's policy for your own protection.
Example
The lender required a lender's title policy of $250,000 (matching the loan amount) to protect their mortgage interest. If a title defect arose, the insurance would cover the lender's potential loss up to the remaining loan balance.