Insurance terminology can be confusing, you’re a business owner, not an insurance expert. It can be difficult to differentiate between terms, but it is crucial to understand the differences in order to ensure that you are getting the right coverage, and that you are in compliance with your plan’s conditions. For example, there are two terms, “additional insured” and “loss payee,” that both describe a third party who requires special protection as part of your commercial insurance policy. The two terms may be similar in some ways, but are very different in terms of the protection offered to all parties involved.
Simply put, an additional insured is anyone added to an insurance policy who is not the primary policy holder. If your business contracts any outside workers or businesses that could be held liable for jobs that they perform while working with you, those third parties will often request to be added to your commercial liability policy. Adding them to your policy will mean that they will be covered for work done with your business or on your premises. You should also request to be added to a business’ liability policy if you are the one being contracted to perform a job.
For example, let’s say you hire a janitorial company to clean your workplace, and a customer or other person who doesn’t work for your business gets hurt on your premises because of something the janitorial company has done. If you have listed the janitorial company as an additional insured on your general liability insurance policy or business owners policy, BOP, then the janitorial company will be protected under your policy in case they are sued for negligence. The additional insured has liability protection, but they don’t have a legal first right to claim payments from the named insured’s insurance policy.
A loss payee is a third party listed on a commercial property insurance policy’s declarations page who is entitled to all or a portion of the insurance claim payments in the event of a loss. When there is a loss payee, who is usually a finance company, bank, or other lender, listed on a policy, the insurance company will pay claims directly to the loss payee first before it makes payments to anyone else, including the policy owner. The named insured, or policy holder, comes second because loss payees have an insurable interest in the property.
For example, if your business takes out a loan to purchase a building, the mortgage company who is financing the building might require you to list them as a loss payee on your commercial insurance policy’s declarations page. So, if there is any damage to the property, such as a fire, or an accident, then the mortgage company’s interests will be protected. Whenever you file a damage claim, your insurance company will have to notify the loss payee (your mortgage company). The insurer will then issue a check to pay for repairs, made out to both the named insured (you) and the loss payee (the mortgage company).
Additional insured and loss payees are both entitled to receive insurance benefits from the named insured’s (policy owner) policy. The main difference is that additional insured will receive liability protection, whereas loss payees will only receive property damage coverage. Additional insured generally cannot receive any payments for any property claims, unless they have a direct involvement in the claim. For example, if the janitorial service from above did not service an area of your business where a customer was injured, then they would have no ability to file a claim.
Whenever you work with another business that increases your business’s legal liability, you should consider requesting to be added as an additional insured on their policy. On the other hand, if you have a direct interest in investing in another business and are considering becoming their lender, then you should request to be added as a loss payee on their insurance policy. That way your interests are protected, and you will get first rights to claim proceeds from their insurance company in case of any damage.
You can’t add an additional insured or a loss payee to all types of small business insurance; these endorsements are only available on some small business insurance policies. To find out if you can add either to your insurance policy, and which one might be right for you, you should speak to an insurance agent. EZ.Insure offers highly-trained agents who will review your business insurance policies, make sure you are properly insured, and help you determine if a third-party request to be named as a loss payee or additional insured is reasonable. Make sure you’ve got the right coverage for your business at the right price by connecting with one of our agents. To get started, simply enter your zip code in the bar above, or to speak to an agent directly call 888-615-4893.