Loss Payees and your Insurance Policy

Loss Payee and your Business Policy

Additional Insured and Loss Payee are two terms that frequently come in for business insurance policies in terms of endorsement requests.

Adding an Additional Insured to the policy is an endorsement to provide liability coverage from your policy to another entity.  An example is a landlord typically requires that you name them as Additional Insured on your General Liability policy.  

A loss payee is an endorsement made on your Property policy.  In the event of a covered claim, the loss payee would be receiving the claim payment for their interest in the covered property.  The endorsement names a third-party as the entity that would be paid for a covered loss.  To be named as a loss payee, they must have an insurable interest in the property  This could be a mortgagee, bank loan where the property was used as collateral, or the owner of equipment leased to you.

The Loss Payee endorsement is issued by the insurance company and provided along with the Evidence of Property Insurance, which will detail the insurance policy information, including insurance limits.

By being named as Loss Payee, the lender ensures that their interest will be paid.  The Loss Payee endorsement also will mean that the carrier notifies them in the event of late payments, policy coverage changes, and policy cancellations. Having them named as Loss Payee on the policy helps reduce loan defaults. 

If a company requests a Loss Payee endorsement and does not get one, they can force place insurance to ensure that their interest is covered.  Forced placed insurance is usually much higher than what you would pay for obtaining a policy and by requesting that your insurance company add them as a Loss Payee, you will not have to pay additional costs for insurance placed through a lender or leasing company.