Named insured and additional insured are two important examples of insurance policy terminology. These terms and their exact definitions can be confusing, especially for those outside or new to the insurance industry. And if that’s not complicated enough, policies may also include additional terms like named additional insured and loss payee — all of which are important to know.
Anyone seeking a career in the insurance industry or whose work will involve insurance should understand these terms and the differences between them.
Who Is a Named Insured?
So — what does named insured mean? It’s really exactly like it sounds: a named insured is the person or business who is specifically named on the insurance contract as the ensured entity. The International Risk Management Institute (IRMI) defines named insured as:
any person, firm, or organization, or any of its members specifically designated by name as an insured(s) in an insurance policy, as distinguished from others that, although unnamed, fall within the policy definition of an “insured.”
To be a named insured, the person or entity also must have an insurable interest, meaning they face the possibility of financial harm resulting from the kinds of losses the insurance policy covers. More than one person can be a named insured. The names of the named insured(s) will usually appear on the first page of the policy contract, typically within the first few lines.
While policies use “you” or “your” to refer to the named insured, when these policies are discussed orally or in writing, it is common to substitute the phrase “named insured” for the word “you” for clarity. For example, if a property policy refers to “a building owned by you,” an insurance practitioner might read it as “a building owned by the named insured.”
Who Is an Additional Insured?
An additional insured refers to an entity other than the named insured who is covered by an insurance policy. Like a named insured, additional insureds can be either individuals, groups, or businesses. IRMI defines “additional insured” as:
a person or organization not automatically included as an insured under an insurance policy who is included or added as an insured under the policy at the request of the named insured.
Having an additional insured endorsement in a policy is helpful for the policyholder as it can protect individuals or groups who have been offered extended coverage by the named insured. If a claim is filed, the additional insured would receive coverage along with the named insured.
Who Is an Additional Named Insured?
If all that terminology wasn’t confusing enough, here’s another one to consider: an additional named insured. IRMI defines “additional named insured” as:
(1) A person or organization, other than the first named insured, identified as an insured in the policy declarations or an addendum to the policy declarations.
(2) A person or organization added to a policy after the policy is written with the status of named insured. This entity would have the same rights and responsibilities as an entity named as an insured in the policy declarations (other than those rights and responsibilities reserved to the first named insured)
So what’s the difference between an additional insured and an additional named insured? Unlike an additional insured, an additional named insured will have the same status and rights as the original named insured. As an additional named insured, they will usually have more coverage than the additional insured(s).
Who Is a Loss Payee?
The loss payee is the entity to whom the claim from a loss is to be paid. IRMI defines a “loss payee” as:
a person or entity that is entitled to all or part of the insurance proceeds in connection with the covered property in which it has an interest. Often those asking to be named as loss payees have leased some type of equipment to the insured—a photocopy machine, for example. Several different loss payee clauses address different insurable interest situations. A loss payee is also common in a personal auto policy (PAP) in which the automobile is financed. The lending institution would be listed as the loss payee on the declarations page.
A loss payee may appear in a policy’s declarations or endorsements, but a loss payee is neither a named insured nor an insured. A loss payee is merely a person or entity that is entitled to receive some payments for losses the policy covers. Loss payees are typically secured creditors whose interest in personal property is protected by a loss payable clause.
A typical loss payable clause does not create a separate contract with the loss payee. It only ensures that the loss payee participates in the proceeds of any covered claim. However, some loss payable clauses extend additional rights to the loss payee, such as a right to advance notice of cancellation or a right to protection even when coverage is denied to the named insured because of the latter’s fraud.
Who Is “You” in an Insurance Policy?
An insurance policy will refer to “you” and “your” — but who actually is “you”? The definition of a named insured may seem to be fairly simple, but the actuality of who is insured can be complicated. Although not named, others fall within the policy definition of an “insured” and varying definitions and approaches in different policies make it challenging to ensure each policy is properly written.
These insurance puzzles and more are explained in two new WebCE courses:
These courses are designed as guides to determine who can be a named insured and “other insureds” under a wide range of commercial insurance policies and the most common personal lines insurance policies.
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