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What is a loss payee in business insurance?

It’s important to understand the basics of your business insurance policy as a small business owner, but it can get confusing with all the insurance industry jargon and legalese.

Loss payee is one of those “insurance speak” terms that can be a little muddy at first.

But no fear! Huckleberry is here to help you get the reliable and affordable small business insurance you need and to help you understand how business insurance works.

Okay, let’s dive into what loss payee means, how to add a loss payee to your insurance policy if you need to, and a few other common questions.

What is a loss payee?

A loss payee is the party (or parties) named on your insurance policy that gets paid if you file an insurance claim involving covered property loss or damages.

Essentially, they have an insurable interest in some of your business property. A loss payee is who you would owe money to from insurance claims payments in the event of a loss or damages to your business property, like a large piece of equipment on a payment plan or a mortgaged or rented commercial property.

The loss payee is not the same as the named insured—the business, firm, or person who holds the insurance policy. But, like the named insured or policyholder, the loss payee is a party that would experience a financial loss in the case of damage or loss to the insured property.

Fun fact: This insurance term is primarily related to issues of property coverage rather than business liability insurance.

Here’s a quick example of a loss payee

Okay, so what’s an example of a loss payee on a business insurance policy?

Let’s say you purchased a small commercial building for your landscaping business as a central workshop location for employees and a space to house larger equipment.

Your business took out a mortgage with a local financial institution to do so, and you have the right commercial property insurance in place for your new workshop building—and the equipment inside. While you own your equipment outright, your lender still owns part of your building based on your mortgage.

And your mortgage lender would need to be listed as a loss payee on your property insurance policy on your policy’s declarations page, as there is a financial risk to your mortgage holder if there’s loss or property damage to your building.

So if an accident happens and the building itself is a total loss that’s covered under your policy, the loss payee (in this case, your mortgage lender) would receive a payment for what you still owe them on the property as the borrower. And you or your business would receive the remainder of the claim payment as the policyholder or named insured.

Is loss payee the same as lienholder?

There’s an important difference between the terms loss payee and lienholder. However, a lienholder for an insured business property may be listed as a loss payee on your insurance policy.

A loss payee doesn’t necessarily have to be the technical owner of a piece of property to be listed, while a lienholder legally owns a piece of property until it’s paid for in full.

For example, if you purchase a commercial vehicle for your business with a loan (with a commercial auto insurance policy to property insure it), the lender would be a lienholder on the vehicle until it’s paid for in full.

How do I add a loss payee to my insurance policy?

Adding a loss payee to your insurance policy is simple. There are a few steps you need to take.

  1. Get the correct contact information for the loss payee. Be sure to check this information directly with the person or entity listed as a loss payee, as lenders often have a separate address for insurance-related matters than they do for payments.
  2. Contact your insurer or insurance agent to get the loss payee added. Call or email your insurance agent (especially if you got your policy through Huckleberry) and ask them to add the loss payee to your policy.

And that’s it! After the loss payee is added, they’ll be notified by your insurance company. Loss payees are also notified when:

  • You make changes to your insurance policy
  • You cancel your insurance policy
  • You haven’t paid your insurance premiums

How do I remove a loss payee from my insurance policy?

Once you’ve completely paid off any loans or debts you owe to the loss payee for the insured property, you can have them removed from your policy.

When you’re no longer in debt to the loss payee (and they no longer have a financial interest if the insured property is damaged), simply notify your insurance company to have them removed from the policy. Your insurance company may require proof of paying off your loan to remove the loss payee.

Loss payee FAQ

Still got questions left unanswered? Below, we’ve included some common insurance questions about loss payees.

What is a loss payee as a designation?

Suppose you’ve been designated as a loss payee on a business’s insurance policy. In that case, it means you have a right to receive claims payment for named property or equipment to recoup financial losses in the event of a covered loss.

When a covered claim is paid, you’ll receive payment first as the loss payee, and whatever is remaining of that claims payment will go to the named insured, or policyholder.

For example, let’s say your business manufactures and restores high-end commercial coffee-roasting equipment, and you sell those coffee roasters directly to coffee shop owners. If you accept payment plans from shop owners, you would be named as a loss payee on the coffee shop’s insurance policy for that equipment until you receive payment for the equipment in full.

What is the difference between a loss payee and an additional insured?

A loss payee and additional insured are 2 separate concepts, although you can have both listed on your insurance policy.

An entity or person listed as an additional insured on your business policy can have the liability protection of your insurance policy extended to them. However, listing someone as an additional insured does not mean they have an ownership interest or right to payments for any damaged or lost business property like a loss payee does.

Let’s circle back to that landscaping business scenario above as an example. Let’s say your landscaping company is known in the area for doing excellent commercial work from the ground up, but you regularly hire out sprinkler system installation to a licensed irrigation contractor, a sole proprietorship specializing in outdoor irrigation installs. You might request to be listed on your contractor’s business insurance as an additional insured to regularly work together with added peace of mind for your own business.

How to get affordable small business insurance today

Regularly reviewing your small business insurance coverages is crucial for any small business owner, including adding and removing loss payees on your policy as needed.

During your regular insurance policy reviews, make sure you’re paying the best price for your small business insurance.

With Huckleberry, you can get instant, affordable coverage (without all the paperwork) in less than 5 minutes. Get a free business insurance estimate today.


Disclaimer

All content on this page is for general informational purposes only and does not apply to any specific case, is not legal, tax or insurance advice and should not be relied upon. If you have any questions about the situation for your small business or the latest information in your state, you should contact an attorney for legal advice, an insurance agent or broker, and/or your state's labor or industry agency, board, commission or department. Please note that the information provided on this page may change at any time as a result of legislative action, court decisions or rules adopted or amended by any state or the federal government.

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