If you own a small business or startup, chances are you’ve come across the term “additional insured” during the course of reviewing your insurance policies or contracts with clients. The additional insured provision can be a valuable risk-management tool when used properly, but it has a specific and limited purpose.
Here’s an overview of what additional insured means, how it’s used in small-business insurance policies, and how you can incorporate it into your overall risk mitigation practices.
Understanding “Additional Insured” Status
In an insurance policy, an additional insured is anyone besides the policyholder (that is, the person who pays for the insurance policy) who enjoys coverage under the policy. That coverage might be limited to a single event or might last for the lifetime of the policy.
While both individuals and groups can be given additional insured status, the protection they enjoy is more limited than that granted to the policyholder. The language of a specific contract outlines the qualifications or limitations that apply to the coverage enjoyed by an additional insured.
What Is Covered for People with “Additional Insured” Status?
Additional insured policies commonly offer…
- Defense coverage. In the event that a third party brings a lawsuit against an additional insured, he or she would be able to collect funds for his or her legal defense from the policy in question. That might include attorney’s fees, court fees, and settlement or judgment costs.
- Protection in the case of bodily injury, property damage, and personal injury. Those with additional insured status may also enjoy compensation for physical damage (such as injuries or equipment breakdowns) and personal damage (such as costs associated with libel allegations).
Both types of coverage, however, may be subject to greater restrictions and / or lower policy limits than they are for the insured party.
When Do I Need to Add an Additional Insured?
Depending on your industry, you may be asked to add new clients or partners as additional insured members of your insurance policy before they will sign a contract. For example, if you operate a bakery, the company that delivers your flour may request to be added to your general liability policy as an additional insured. This protection would extend your coverage to the supplier when he or she is working on your premises and / or on your behalf.
For the most part, your clients and partners will let you know if and when they require additional insured status in order to work with you.
How Do I Add an Additional Insured to an Existing Policy?
The first step to adding an additional insured is to review your policy and identify how your insurer handles additional insured parties. You can also consult with your insurance agent for guidance about how to amend your policy to add an additional insured.