HOW TO TELL THE DIFFERENCE BETWEEN ADDITIONAL INSURED AND LOSS PAYEE

If you own a business, chances are that you’ve at least considered setting up an additional insured endorsement as part of your standard contract of insurance with a potential business partner or contractor. For instance, your plumbing company may need an extra hand from a tiling company it hires for a job. In turn, the contractor might want your company to add it to its insurance policy.
The primary reason is that the tiling company needs some sort of coverage to protect itself from liability in case something goes wrong during construction. For example, if a worker slips and falls while installing the tiles, the tiling company could be held liable. If it doesn’t have insurance, it could end up in financial trouble. Insurance coverage averts this risk.

It also protects you from any damages that might occur during the company’s time on the property. But then, you need to know what endorsement suits your business best. Here’s where Loss Payee and Additional Insured come into play. Although similar, in that both terms extend to third-party businesses, they are worlds apart. Let’s analyse them.

What is an Additional Insured?

The term simply implies a party that is not the named insured on a policy but has been added to the policy for the purpose of insurance protection. The individual or entity can be typically added as a named insured, an insured under a blanket policy, or an insured under an endorsement, depending on the carrier of the insurance and the terms of the policy.

Adding an additional insured to your policy gives that person the same rights and coverage as the named insured. The purpose is to provide insurance protection to that party in the event of a claim. Suppose you run a bakery on a rented property. Your landlord may request to be included as an additional insured.
By doing so, if one of your workers were to be injured while working in your kitchen and files a personal injury claim against you and your landlord, your insurance company would be responsible for defending and indemnifying you both from any losses related to the claim.

What is a Loss Payee?

It is a party that is named on an insurance policy to receive payment in the event of a loss. In the context of property insurance, a loss payee is the mortgage lender or the lienholder on the property. Usually, the individual is responsible for property damage and has the most to lose in the event of a loss.
In the case of a financed car loan, your commercial auto insurance California-based policy can include your lender as a loss payee. This means should your vehicle become damaged or totalled, your lender will be reimbursed for the outstanding loan amount.

It can also help to protect your investment and ensure that you don’t face any additional financial burden in the event of an accident.

How Do They Differ?

Perhaps, you intend to get the best small business insurance California offers.You can either choose additional insured or loss payee for added protection, based on your situation and business needs. Here’s how they differ:

Coverage

Additional insured covers liability. This means that the covered third-party business is liable for the policyholder’s action. Loss payee, on the other hand, covers property damage. So, in an unfortunate event, the insurer pays the insured, as well as the loss payee.
Let’s say a fire accident leaves a manufacturing plant that has a loss payee clause and the property on which it sits in ruins. The insurance company will pay the manufacturer the agreed-upon percentage of the damages.

Cost

Another difference is the free process of adding a loss payee clause to an insurance policy. Likewise, instead of additional coverage, the insured gets an existing redirected plan. On the contrary, additional insured entails purchasing an endorsement or rider, which comes with a charge. However, this fee pales in comparison to a premium.

How To Add Endorsements

Here are some ways you can go about adding an additional insured or a loss payee.
Contact a Reputable Insurer

If you intend to add an endorsement to the most affordable commercial property insurance California insurers offer, the first step is to contact one. The insurer will provide you with the necessary documentation.

But first, you’ll need to provide a copy of the legal contract that shows the relationship between the loss payee and the insured. The insurer may also verify the payee’s financial stability.

Identify Any Endorsement Provisions

Specific changes or additions to an insurance policy can be classified as endorsements. So, they can change the policy’s level of protection. Top insurers allow you to add a loss payee endorsement to your insurance. This gives the entity the right to receive payment from your insurance company if the insured property is damaged or destroyed.

Learn If The Policy Covers a Third Party

Some insurance policies cater to a loss payee or an additional insured. And such will entail filling out a request form with your insurer. The third-party information is to be provided within this form. But don’t be in a rush. Find out if the endorsement suits your situation.

Verify the Policy’s Coverage Amount

The amount of coverage that an insurer can offer for additional insured endorsements may be capped. That’s why you should review your policy to be sure you have enough coverage for your business.

Read the Fine Print

There’s no doubt that an additional insured endorsement protects business. But before you get one, carefully read its terms and conditions. Understand what is and isn’t covered and ensure that you are comfortable with the clauses.

Conclusion

Whichever endorsement you finally choose will depend on the kind of coverage you need. If you have general liability insurance California businesses deeply trust, an endorsement might be an ideal addition. This coverage protects your business from third-party claims. Before you get one, do well to review and comprehend the clause and limitations.

Disclaimer

The information provided in this blog is for general guidance purpose only and does not qualify as legal advice. For Insurance specific information kindly contact us at (510) 613 4604 or visit our website www.aumins.com.