Loss Payee Vs. Additional Insured Property Insurance

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Insurance requirements for property vary depending on the situation. Other parties involved with your property may require special protection as part of your property insurance policy, and may ask to be named as a "loss payee" or "additional insured." The terms are similar, but have very different meanings and provide different levels of protection to all of the parties involved.

Loss Payee

Insurance companies pay claims directly to the loss payee first, before any payment is made to another person, including the policy owner. Typically, a mortgage company that holds a lien against the property requires the owner of the home to purchase property insurance and name it as the loss payee. This allows the mortgage company to collect payment for damage to the property to ensure that their interest is protected.

Additional Insured

The additional insured person on a policy is an entity that has the same insurance coverage as the policy owner. This designation is often used with liability insurance coverage where another person or company could be held liable for the operations of the policy owner. For example, a franchisor may require a company operating one of its franchises to name the franchisor as an additional insured on its liability insurance policy, in case the franchisor is sued because of an action of the franchise owner.

Property Damage

If an insured person's home is damaged beyond repair, the homeowner's insurance company will issue a check to the mortgage company for the damages up to the balance of the mortgage, with the homeowner receiving the rest. A lender may waive payment of the claim to allow the homeowner to perform repairs on the property. With more extensive repairable damage, the mortgage company may disburse money to the homeowner as the repairs are made to be certain that the property is kept in good condition.

Liability Claims

Simple liability claims are usually straightforward, and the additional insured provisions may not apply with smaller claims. If a person slips and falls in your place of business, the liability insurance company will probably just pay the claim. If the person files a lawsuit for a large amount, the business liability coverage will provide for the defense of the suit, and settlement of the damages or payment of the judgment up to the policy limits. This protection would apply to any additional insured parties listed on the policy.

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