Additional Interest vs. Additional Insured: What’s the Difference?
Insurance policies can be complicated and often use unique language. When it comes to your car insurance coverage, you want to be certain you understand the jargon since this can affect your coverage and how much you pay.
Regardless of the type of insurance policy you have – whether it is auto, homeowner’s, renter’s, commercial, etc. – it is vital to learn about your coverage and your policy’s definitions. Coverage definitions can vary from policy to policy, so becoming familiar with the language your carrier uses is essential.
Two terms that are often confused or interchanged are additional interest and additional insured. They have two distinct and vital meanings, however. Read on to learn more about the differences between additional interest and additional insured.
Additional Interest vs. Additional Insured
While the terms may sound similar, additional interest and additional insured have different meanings. Listing the third party incorrectly on your policy could be costly if you believe they have coverage when they do not. It could also cause legal troubles if you are obligated to list the third party as an additional insured, but you fail to do so or list them only as another interest.
What is Additional Interest?
Additional interest is often called an “interested party” or “party of interest” in insurance terms. This third party has an interest or benefit in knowing an insurance policy is in force but does not need to be listed as a covered party under the policy. They do not need coverage from the policy.
Being listed as an additional interest on an insurance policy means you will be notified of administrative changes to the policy, such as cancellations, coverage lapses, changes to coverage, or non-renewal of the policy. An additional interest does not benefit directly from the policy in case of a loss, however.
There is no cost to the policyholder to list an additional interest on their policy as no coverage is extended to that individual – it is merely to notify the individual of policy changes.
An additional interest is often listed in homeowner’s, renter’s, and auto insurance policies to name mortgagees, landlords, and leasing companies.
What is an Additional Insured?
An additional insured is someone whom the insured requests to list on their policy. This is someone who would not usually be included in their coverage but has a financial interest in the property the policyholder must protect. An additional insured is considered a loss payee and the named insured, up to the limits of their insurable interest in the property.
Sometimes the policyholder is obligated by contract to list additional insureds, such as when leasing space in a common building. Other times an additional insured may be listed to protect those additional individuals – an organization that rescues dogs may list their fosters as additional insureds to indemnify those individuals.
An additional insured is different from an additional named insured, who is a person or organization listed as a named insured on the policy and carries the same rights and responsibilities as the first named insured. The policy itself should further define the extent of the roles of the additional insureds.
Why is it Important to Get it Right?
When listing a third party as an additional insured or additional interest, it is vital to pick the correct category. If you mistakenly list an additional interest as an additional insured, you give them rights and responsibilities under your policy. That third party could make a change to your policy terms or coverage. You will also pay an additional premium to list an additional insured.
Suppose you have a legal or contractual obligation to list the third party as an additional insured, and you accidentally list them as an additional interest only. In that case, they will not be afforded coverage, and you may be liable to them for damages should a loss occur.
Changing or Removing Additional Insureds
If you need to change the status of a named insured or additional insured on your policy, contact your agent or insurance carrier directly. They may issue an endorsement with modifying your policy to remove the additional insured or additional named insured for the term’s remainder. Any additional unearned premium would be returned to the policyholder following the change in terms.
Automatic Additional Insured Endorsement
The automatic additional insured endorsement is also often called a blanket additional insured endorsement. This is an endorsement that can be added to a liability policy to automatically give insured status to a person or entity whom the named insured is required by contract to list as an additional insured.
Additional Interest vs. Additional Insured in Auto Insurance
If you finance or lease your vehicle, your lienholder or leasing company will request to be added as an additional interest. They do not need coverage from your policy. Still, since you do not own your vehicle, they do have a financial interest in ensuring you maintain sufficient coverage through your auto insurance.
If you use your vehicle for work, such as those working outside sales or marketing, your employer will sometimes ask to be listed as an additional interest. They wish to know you have auto insurance because you are driving during work hours to visit clients. They are interested in knowing you carry at least fundamental limits to protect them should you be involved in an accident during work hours.
However, an additional insured that you request to list on your auto policy will be afforded rights and responsibilities similar to you as the named insured. An additional premium will be paid to cover the additional insured.
Additional Interest in Renter’s Policies
Often, a landlord or property owner will ask to be listed as an additional interest on the renter’s policy. This is to protect their property as they will be notified if you cancel or non-renew your coverage. Many apartment complexes enforce renter’s insurance as part of the lease agreement – failing to maintain coverage could void the lease.
Renter’s insurance companies will often work directly with a leasing company or apartment complex and automatically provide coverage for all units. When a new renter moves in, they may keep that minimal coverage or purchase their policy with sufficient liability limits to satisfy the leasing office.
Because landlords do not generally have another way of knowing if their tenant is maintaining insurance coverage, the additional interest can be the best way for a landlord to confirm the policy remains in place throughout the tenancy.
Landlords are most interested in ensuring you maintain basic liability coverage. This does not cover your personal property, which is why carrying your own renter’s insurance policy is essential. The liability portion concerns your landlord. This portion helps cover things like a friend getting hurt while visiting you or damage you may cause accidents that injure another person.
It is easy to add your leasing company or property management company to your renter’s policy – simply call your carrier or go online to their site to make the change. You will need to have the name and address of your leasing company and perhaps their telephone number. Once they are added, they will receive confirmation from your carrier and begin receiving updates if you make any policy changes.
Additional Interest in Homeowner’s Policies
If you have a mortgage on your home or property, the mortgage company will often request to be listed as an additional insured on your homeowner’s policy. Because of their financial interest in your property, they want to be certain you maintain fundamental limits of coverage and do not cancel your policy after obtaining the mortgage.
A homeowner may wish to list third parties as additional interests on their homeowner’s policy when multiple people own property in common, such as a family lake house or hunting cabin. Listing the other owners as additional interests protect everyone from unexpected changes in coverage.
Additional Interest vs. Additional Insured in Commercial Policies
Commercial general liability (CGL) policies, such as those used by contractors, often name other parties as additional insureds. A common example is a general contractor working on a building under construction – the building’s owner will ask to be called an additional insured since they have a financial interest in the building and the work being performed by the general contractor and their workers.
ISO modified the Additional Insured forms in 2013. It made changes to language around how additional insureds would not be afforded broader coverage than the contract that required the additional insured to be named. This new language is being tested in court cases around the country and could be modified again.
Suppose a contractor is working for a government agency, perhaps doing construction work at a park owned by the county. In that case, the county will often request to be listed as an additional named insured due to their financial interest in the work being performed by the contractor.
Alternatives to Being Named an Additional Insured
If you have a financial interest to protect but do not want to be listed as an additional insured, how can you protect your interests? You may consider a few risk transfer alternatives instead of being listed as an additional insured on the liability policy. Carefully research your options before deciding what is best for your situation.
One way to protect your interests is to execute a hold harmless agreement, also known as an indemnification clause. This is the part of your contract where the contractor’s responsibilities are outlined, and it includes the duty to defend other involved parties. Having a hold harmless agreement can shift liability to the contractor and help keep you from liability should the contractor be negligent or make an error.
A second way is to have a waiver of subrogation in your contract – this means the insurer waives their right to come back to you to recover damages they paid out.
A third risk transfer alternative to being named an additional insured is to include a clause for insurance procurement and obtaining an insurance certificate (COI). Adding this clause means you require the contractor to get insurance and maintain proof of insurance for the project’s duration through the COI.
Your insurance agent or carrier could help you put together a Contractual Risk Transfer Program to protect your interests.
Do I need to add a third party to my policy as an additional insured or additional interest?
You may be obligated to add a third party to your policy depending on legal or contractual obligations, such as leasing property or owning property in common with other individuals or entities.
Will I pay more to have an additional insured or additional interest on my policy?
You will pay more to have an additional insured because that individual is afforded coverage. There is no extra cost to add additional interest to your policy because that interested party does not benefit from the policy – they are only given administrative notice if the policy ends or changes.