Can we require a customer to maintain terrorism insurance on collateral?

I have had several clients whose bank has required the terrorism insurance coverage. The issue is the exact mortgage requirement for insurance. Most mortgages I see require that the perils included in the standard "all risk" insurance policies are mandatory. The current standard policy does not exclude terrorism - though most insurers exclude it by endorsement.

While I understand the bank's position there are other issues to consider.

The terrorism coverage offered by most insurance companies only provides coverage in compliance with the 2002 Terrorism Risk Insurance Act. In short, only acts of foreign terrorism are covered. Acts like Oklahoma City would not be included in the coverage.

First published on BankersOnline.com 04/21/03