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Loss payee

A loss payee is a person or organization listed on an insurance policy’s declarations page that is entitled to receive claim payments before the policy owner due to a financial interest in the insured property.

What is a loss payee?

A loss payee is entitled to an insurance claims payment in cases of property damage, despite not being the named insured on the policy. This typically occurs when a small business uses collateral to secure a loan.

For example, if you take out a loan to purchase a business vehicle with an auto financing company, the company could require you to put up the vehicle as collateral against your loan. If you fail to make payments, it can repossess the car.

The company could also require you to maintain insurance on the vehicle, asking you to put its name as loss payee on your policy. This means if you total the vehicle in an accident, the company will get its money back in the form of a payment from the insurance company.

In short, you’ll have to name the person or company that you borrowed from as a loss payee on your commercial property insurance or commercial auto insurance policy whenever you owe money on something – be it a car, an office building, or a piece of equipment.

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What is insurable interest?

Insurable interest is another way to describe financial interest but in the context of insuring financed property. To become a loss payee, a lender must first have an insurable interest in the property. Someone has insurable interest in an item when loss or damage to it would cause them financial loss.

How do you add a loss payee to an insurance policy?

Anytime you lease or finance new equipment, tell your insurance account manager that you have a loss payee to add to your policy.

Be sure to provide the correct name of the entity to list on your policy declarations page. It will either be the firm that loaned you the money to buy the equipment or that leased it to you.

What happens after you add a loss payee to your policy?

After you add a loss payee to your policy, your insurer must inform the loss payee of any changes to your policy. This includes:

  • Changes to your policy (different limits or coverages)
  • Late or missed payments
  • Policy cancellation

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Updated: April 29, 2022
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