What's the Difference Between Additional Insured and Loss Payee

March 28, 2022

While Additional Insured and Loss Payee sound similar, they are quite different besides the fact that they both extend the policyholder’s insurance coverage to a third party. In this post, we’ll look at the difference between the two and the situations they are commonly used for.

What is Additional Insured?

An additional insured is a third party added to an insurance policy because of liability exposure due to their relationship with the insured. By including an additional insured in the insurance policy, the policyholder can extend some degree of coverage to a third party. This is often done to comply with a contract or to protect a person or entity close to the policyholder.

An example of this is a plumber who works for a general contractor being required to name the general contractor as additional insured. If the plumber causes a problem on site, the insurance policy will protect the general contractor in addition to the policyholder.

What is a Loss Payee?

A loss payee is a person or entity entitled to insurance payments due to damage or a loss of insured items. This is typically executed by a loss payable clause on the declarations page of an insurance policy. This will direct all or some of the total insurance payout to the loss payee. Two policies that often carry this clause are Commercial Property and Commercial Vehicle insurance.

For example, when a business leases a vehicle, it will commonly need to add the leasing company as a loss payee on their Commercial Insurance Policy. Therefore, in the event of a crash or totaling of a vehicle, the car leasing company will receive an insurance payout for their loss.

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

To add an additional insured or loss payee to an insurance policy it’s best to first consult with your independent insurance agent to review your options. They will be able to let you know which endorsements are available for a particular insurance policy, as you cannot add an additional insured or loss payee to all types of insurance policies.

An independent insurance agent will also be able to advice if the third party’s request is reasonable and if the coverage amount is adequate. When adding an additional insured, this will increase your insurance premium, but it’s typically a small amount compared to the cost of the overall policy. The addition of a loss payee generally does not increase the cost of your policy. If you have further questions about additional insured or loss payee additions to an insurance policy, please reach out to us. We’re here to help!

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