What is the difference between Additional Insured and Loss Payee?

Additional insured coverage and loss payee coverage can extend insurance coverage beyond the insured. Contractual agreements often allow for third-party coverage. A loss payee is different from an additional insured in that they can collect payments from the insurer.

The general liability policy does not cover , but neither the loss payee nor the additional insured can change the coverage. They just change who is covered and who is paid out in a claim.

What is an Additional Insured?

Additional insured refers to a person or entity that is exposed due to your business operations. It is covered by your insurance policy as an extension of your coverage. The additional insured is listed on your insurance policy’s declarations page. Although listed, it is not considered a named insured and does not have the right to make any changes or receive checks for claims payments.

Example of an Additional Insured

The lease contract for commercial property will specify the amount of insurance that you must have and the requirement to include the property owner as an additional insured. Your liability is for the property owner in cases such as a slip-and fall accident at your location. However, the property owner requests to be covered by your policy. Your policy protects the building owner if someone sues. This is common in general responsibility or business owner’s insurances (BOPs).

Additional Insured Rights

When an additional insured is named on a business policy, there are certain rights. These rights include:

 

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  • Protection from liability
  • Insurance benefits
  • Only those who have a direct interest in the protection of liability claims are eligible for coverage

The policy is not in the full control of the additional insured. They are not able to change the policy, increase coverage or make cash claims. Their name will not appear on the check if they are not listed on the policy as a loss payer.

How to add an additional insurance

In general, an additional insured is added when requested by a third-party with whom you are contractually engaged. It could be a leasing company that leases your commercial space or another business you are subcontracting or working on a major project.

It is important that you specify when your business would like to be added to another company’s insurance policy. You will need to add your business to their insurance policy if you hire subcontractors or allow someone to use your space for business purposes.

How to add an additional insurance

With a little information about the third person, your insurance carrier may be able to add them as an insured. They will ask for the legal name, address, and telephone number of the third party. If there is a contract number, they will take it. Although most insurance companies don’t charge extra to add additional insureds, it is worth checking with your provider.

What is a Loss Payee and How Does It Work?

An additional insured has more rights than a loss payee. When it comes to property loss, the name insured is not entitled to any claims. This is because the loss payer retains an insurable right in the property, while an additional insured is only mitigating their potential liabilities.

Example of a Loss Payee

A mortgage company that owns commercial property is an example of a loss payer. If the property is damaged or destroyed by fire, the mortgage company will be the most vulnerable. They want to ensure that the funds used to repair or rebuild the property are used in the event of a loss. This is why they have the right to the funds. A frustrated business owner could claim the money and then abandon the property.

Loss Payee Rights

The loss payee is entitled to the first property claim proceeds. However, they do not have complete authority over the policy. They cannot cancel, change or increase coverage. They have the following rights as loss payee:

  • Right to insurance benefits – First right to any proceeds from any property claim for which they have an insurable interests
  • Property protections available to all

 

Insurable Interest A party with an insurable interest can suffer financial loss if there is a claim. This is often seen in property insurance.

 

How to add a loss payee

When you buy or lease commercial property such as machinery, real estate, or heavy equipment, a loss payee may be requested to be included. A bank may request that you assign a loss payer to it if they provide you with a loan, line or credit.

How to add a loss payee

Talk to your insurance company to add a loss payer. They will need to know all details about the party including their legal name and address as well as contact information. The loss payee does not change the underwriting of the policy. However, it is best to verify this with your insurance company.

Bottom line

It is important to have the correct third-party designations in your insurance policy so that everyone is properly protected. The third party will most likely tell you if they should be added insured or loss payer. If they refuse to tell you or request more rights, keep in mind that the loss payer has an insurable right in your property. An additional insured needs to be released from liability.

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