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Need help distinguishing between additional insureds and loss payees?
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It can be easy to confuse additional insureds and loss payees because both can be added to your business insurance policy, but they are not the same thing, and you should understand the difference.
Additional Insureds
An additional insured is a person or a business that is exposed to liability in its business relationship with you. To reduce that risk, that third party asks you to name it as an additional insured on your insurance policy declarations page.
That is still complicated, so let's use an example. Imagine that you own the building out of which your company does business, and you hire a cleaning company to clean your premises. If a visitor is hurt after tripping on some equipment left in a hallway, the cleaning company could be sued. To protect itself, the cleaning company asks you to list it as an additional insured on your general liability insurance or business owner's policy.
You can also be the additional insured. For example, you may own the cleaning company. In this case, you would want to think about asking for additional insured status any time your own business's legal liability increases as a result of working with a third party.
Loss Payees
A loss payee, on the other hand, is a person or business that has first rights to insurance payments made after a property loss. That may sound complicated, so let's use another example. Say you're a plumber, and you take out a loan to purchase a truck. The bank requires you to use the truck as collateral against the loan, so if you stop making payments, the bank can repossess the truck.
Now, what happens if you damage the truck in an accident and file a claim with your auto insurance company? In theory, you could stop making loan payments, refuse to repair the vehicle and keep the insurance money. The bank would be out of luck (and money).
So the bank asks you to name it as a loss payee on the declarations page of your auto insurance policy. When you file a damage claim, your auto insurance company must notify the bank, and any check issued to pay for repairs must be made out to you and the bank. Both you and the bank are protected.
Next Steps
It is not possible to add a loss payee or an additional insured to every small business insurance policy, but we can help you determine whether someone's request to be added as an additional insured or loss payee is appropriate and what coverage is right for the circumstances.
How much does this cost? Adding an additional insured increases your premium, but it will be a relatively nominal charge compared to the cost of the policy itself. And adding a loss payee typically will not increase your premium because it creates no additional risk.
We'd be happy to review your business insurance needs and determine if you are adequately protected.