When you have a rental property, a homeowners association, or a condominium association, insurance claims can become complicated because there are multiple interested parties involved. An additional insured endorsement can help.
What is an additional insured endorsement?
According to IRMI, an additional insured is a person or organization added as insured under a policy at the request of the named insured. The additional insured would not be included as an insured automatically. Additional insured endorsements are common in both commercial general liability and property insurance policies.
Additional insured vs. named insured
Investopedia explains that an additional insured can file a claim under the policy, just as a named insured can. However, these two terms are not interchangeable.
The named insured is the person or organization who appears on the declarations page as the recipient of insurance coverage. This is often the person or organization that purchased the insurance policy.
The named insured is also responsible for paying the premium. In some cases, related individuals may be automatically covered, even though they are not the named insured. An additional insured is a person or organization who would not automatically receive coverage under the policy.
For example, if you buy a homeowners insurance policy for a house you own and live in, you will most likely be the named insured. However, the policy likely covers all members of your household. If someone else needs to have insured status – for example, a lender or homeowners association – you might name this organization as an additional insured. Anyone with additional insured status also has coverage under your policy and can file a claim.
Additional insured vs. additional interest
An additional insured is different than an additional interest. According to Property Casualty 360, people often confuse these terms. Someone may ask an insured to list them as an additional insured when they actually want to be an additional interest. The key difference is an additional interest has a financial interest in the policy, whereas an additional insured is insured under the policy and can file a claim and receive coverage. An additional interest should be notified of coverage changes – for example, if the policyholder cancels coverage – but cannot file a claim.
Loss payee vs. additional insured
The loss payee is the person entitled to any insurance payout, either in part or in whole. This is someone who has a financial interest in the insured property. For example, if you lease a piece of property, you may purchase an insurance policy to cover it, but the person who owns the property would be the loss payee. While the additional insured has the right to file a claim, the loss payee has the right to receive the payout for a claim that the named insured files.
Who can be an additional insured?
Any person or organization that should be covered under the policy but is not the named insured can potentially be listed as an additional insured.
On a landlord insurance policy, a property manager can be named as an additional insured. A landlord may also be the additional insured in a tenant’s commercial general liability or renters insurance policy.
Likewise, in an HOA insurance policy, a mortgage holder may be listed as an additional insured. The HOA may also ask the individual homeowners or unit owners to add the HOA as an additional insured on their insurance policies.
Should a landlord be an additional insured?
Landlords sometimes ask to be listed as an additional insured on their tenants’ insurance policies. Whether this is appropriate will depend on the situation and type of insurance. For example, in a commercial property situation, the landlord may need to be an additional insured on the tenant’s commercial general liability policy. This provides landlords with protection in case they are named in a lawsuit.
In a residential setting, landlords sometimes ask to be listed as an additional insured. However, if they just want to make sure their tenants maintain coverage, they only need to be listed as an additional interest. This status means they will be notified if coverage is terminated.
The pros and cons of additional insured status
For the person or organization listed as an additional insured, this status can be beneficial because it extends coverage. If they need to file a claim on the policy, they may be able to do so and it shouldn’t impact their own coverage or rates. They may also be notified of coverage changes and may be included on checks for claims payments.
For the named insured, however, adding an additional insured can have drawbacks. For one thing, it can raise the price of the policy. The additional cost is typically modest, but rates may go up if there is a claim.
The Big “I” warns that insurers may refuse to add an HOA as an additional insured on a homeowners insurance policy. If the additional insured status is not necessary or possible, additional interest status may be sufficient.
Protecting Your Financial Interest
HOAs and COAs need to make sure that they have appropriate HOA insurance and COA insurance, respectively, and that both the association and the individual owners are covered. To accomplish this, the association needs a master policy. The individual owners also need their own policies, to which the association may want to be added as an additional insured or additional interest.
Landlords also need to make sure their rental property investments are protected. They should carry their own landlord insurance to cover their property and liability and tenants should carry renters insurance to cover their personal property and liability. Landlords often add a stipulation to the lease that requires tenants carry renters insurance. Having additional insured or additional interest status can help landlords enforce this.