What’s the Difference Between a Loss Payee & an Additional Insured?
On the surface, loss payees and additional insureds may seem similar. Both options extend the named insured’s coverage to a third party, but that’s where the parallels end. The two are actually quite different in their scope and coverage.
What Is a Loss Payee?
A loss payee is a third party entitled to insurance payments for property damage losses. This is done by adding a loss payable clause on the declarations page, which may transfer all or some of the total payment to the loss payee.
Loss payable endorsements are most common when a third party owns or partially owns a physical property. Commercial property insurance and commercial vehicle insurance often carry these clauses to cover leased or financed items. When a loss payee is listed on the policy, the insurer must also notify them of claims or changes to the policy.
For example, let’s say a bakery leases a commercial oven. It may add the party from which it leases the oven as a loss payee to its commercial property policy. If a fire breaks out in the kitchen and damages the bakery, both parties would receive payment based on their insurable interest in the affected property.
What Is an Additional Insured?
An additional insured is usually a person or entity with liability exposure because of their relationship with the insured. The named insured can usually include an additional insured under their policy to extend some degree of coverage to the party, whether to comply with a contract or protect another person with whom they have a close relationship.
Most often, the larger entity leverages their bargaining power to require a smaller company to list it as an additional insured. This endorsement is also frequently used with an indemnity clause as an extra layer of protection for the indemnitee.
For instance, an electrician who does work for a general contractor may be asked to list the general contractor as an additional insured. If the electrician makes a mistake on the job, their insurance policy will then protect the general contractor as well.
So What Are the Differences Between a Loss Payee and an Additional Insured?
Although loss payees and additional insureds are both entitled to insurance benefits, loss payees only receive property damage coverage while additional insureds are only entitled to liability coverage.
Let’s explore these differences further, in terms of coverage and cost.
Loss payable endorsements are typically used with property-related policies and give the loss payee a share of the payment in the event of damage.
Additional insured clauses usually modify liability policies to extend coverage to a third party that could be liable for the named insured’s actions.
Adding a loss payee is often free to the named insured because it does not provide additional coverage. Instead, it simply redirects the existing coverage.
However, designating an additional insured typically carries a charge, though is usually insignificant compared to the cost of the premium.
How to Add a Loss Payee or an Additional Insured
- Contact your insurance agent.
Your insurance agent can tell you what you need to know, share advice, and walk you through the process of adding a loss payee or an additional insured to your policy.
- Find out which endorsements are available.
Some policies may not allow for loss payee or additional insured clauses. An insurance agent can tell you what endorsements are possible.
- Discuss whether it is reasonable to add someone to your policy.
While some contracts may require that you include a loss payee or an additional insured, your insurance agent can help assess whether these expectations are reasonable for the situation.
- Determine whether you have the right amount of coverage.
Your contract may spell out how much coverage you need to carry, but an insurance agent will be able to assess whether this is sufficient for your level of risk.
Policies and endorsements can seem complicated, but tracking them doesn’t have to be. bcs makes it easy to collect, review, and correct Certificates of Insurance (COIs) to ensure compliance. Our self-service solution equips you with the tools, while our full-service option also supplies the team. To learn more or schedule a demo, contact us today.
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