NYC Insurance Blog

Additional Insured Vs. Loss Payee: What’s The Difference?

Running a business and managing your team can be a lot to handle as a business owner. In addition to all the responsibilities, you must ensure that you protect your business from claims. Insurance terminologies can confuse you if you are unfamiliar with the insurance industry. And while an insurance agent might help you get a good policy, you need to understand some of the terms on your own. 

Most businesses often partner with other companies to achieve their desired goals. These other businesses may request to be added to the policy of the collaborating company to protect themselves from legal claims. 

Additional insured and loss payee may seem similar, but they are different. Although both cover the third party, they have other uses. 

What Is Additional Insured?

Additional insured refers to an individual or business entity added to the insurance policy other than the policyholder covered by the insurance policy. 

Partnering with other businesses exposes your company to other additional risks. The named insured will add the other parties to the policy under the liability policy to protect your company. Most larger business entities have the leveraging power to request the smaller company list it as an additional insured. 

For instance, a plumber who works for a general contractor may list the general contractor as an additional insured if the plumber makes any mistakes while on the job. The policy will extend to the general contractor and cover them against any claims. 

When Should One Consider Adding an Additional Insured On Their Policy?

It would be best to consider adding an additional insured when working with an individual or business that exposes your business to legal liabilities. This is a valuable strategy to transfer risk that may harm your business. Having a hard time understanding who should be additional insured, letting a Broker help you will make the process alot easier!

What Is Loss Payee?

Loss payee refers to an individual or business entitled to all or some of the proceeds paid by the insurance provider in the event of damages or loss. This type of endorsement is more common where the third party fully or partially owns the property in question that performs the task. The loss payable clause is added to the commercial vehicle or property insurance. This often occurs when the items involved in the functions are being leased or financed.

For example, a general contractor leases a commercial vehicle. The general contractor will add the party from which it rents the car as the loss payee on the commercial vehicle insurance policy. If, in any event, the vehicle gets damaged beyond repair, both parties will receive payments based on the insurable interest on the car. 

What's The Difference Between Additional Insured and Loss Payee?

One significant difference between loss payee and additional insured is their benefits from insurance policies. Additional insured protects third parties from the named insured conduct by providing the same coverage under the policyholder. Additional insured receive liability protection. The additional insured clause is added to the liability policy.

On the other hand, the loss payee receives part, or all of the proceeds paid by the insurance provider in the event of damage or loss. This type of endorsement is common in property-related policies. 

Note that both the additional insured and the loss payee do not have full authority over the insurance policy. They cannot submit any claims under the policy. They can only receive benefits from the insurance policy. They also have no authority to make changes or cancel the policy; only the policyholder has the right to make the changes mentioned earlier. We as a brokerage, and your agent, can make changes if need be without the hassle, give us a call today!

The second difference is the cost of adding the parties to the policy. Adding a loss payee to the policy is usually accessible to the named insured because there is no added coverage. The existing coverage is extended to the parties added. The payments in the loss payee are split between the loss payee and the insured party. 

However, an additional insured charge is incurred while adding a third party to your insurance policy. Although you pay a fee, the amount is less than what you would spend while purchasing a whole policy for the third party. 

How to Add Additional Insured or Loss Payee to Your Insurance Policy?

Before you add the loss payee or the additional insured to your insurance policy, there are a few things you need to determine.

• Contact your insurance broker. An insurance broker will provide you will all the information you need to know, the process, and the requirements needed to add a third party to your policy.
• If adding the third parties to your policy is the right move. Some contracts may require you to add an additional insured or loss payee to your policy. Contacting an insurance agent or broker will assist you in determining if the addition is reasonable depending on the situation.
• Your insurance policy will stipulate how much your policy can carry and whether there is enough coverage. An insurance agent will be able to guide you on whether your policy is enough to cover even third parties. 
• What types of endorsements are available? Specific insurance policies do not have loss payee or additional insured clauses. Contacting an insurance agent will help you determine which policies provide the inclusion of a third party and those that do not. 
• To add a loss payee to your insurance policy, ensure that you have the correct address for the lender. Contact the lender and ask what address they want to be listed on the loss payee for the insurance policy. Contact your insurance agent and request them to add your lender as the loss payee on your policy.
• To add an additional insured to your insurance policy, contact your insurance agent and provide the contact details (name and address) and why you want to add them to your policy. After adding the additional insured, the insurance provider will provide a certificate as proof of the addition. 

Adding an additional insured will increase your premium rates, but the cost will be low compared to purchasing a whole policy for the third party. Give us a call today, we are more than happy to give you a Quote & explain the in's and out's!

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