Glossary of Business Insurance Terms
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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 a third party listed on your business insurance policy that has a financial interest in the insured property. If that property is damaged or destroyed and a covered claim is approved, the loss payee is paid before you receive any remaining funds.

Loss payees are most commonly lenders, leasing companies, or other entities that financed or leased business property such as vehicles, equipment, or buildings.

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.

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Why does loss payee status matter for small business owners?

If you’ve taken out a loan or signed a lease to acquire business property, your lender or lessor may require you to name them as a loss payee. This protects their financial interest in the property until the loan is repaid or the lease ends.

For small business owners, this matters because:

  • It’s often a condition of financing or leasing
  • It ensures claims payments go toward repairing or replacing the financed property
  • Failing to list a required loss payee can put you out of compliance with your loan agreement

Importantly, naming a loss payee typically doesn't increase your insurance premium, since it doesn’t change the coverage itself—only how claim payments are distributed.

When do small businesses need to name a loss payee?

Loss payees show up in more situations than many first‑time business owners realize, such as:

  • Business vehicles: If you finance a work truck or van, such as a landscaping truck or bakery van, the auto lender is usually listed as a loss payee on your commercial auto policy.
  • Leased or financed equipment: Equipment financing companies often require loss payee status on tools, machinery, or technology your business relies on.
  • Commercial property loans: If you own your building and have a mortgage, the lender may require loss payee or mortgagee protection on your commercial property policy.
  • SBA and small business loans: Some loans secured by business assets require the lender to be named as a loss payee until the debt is paid off.

How does a loss payee work in a claim?

If insured property is damaged and a claim is approved:

  • The insurance company issues payment to the loss payee first, up to the amount of their financial interest.
  • Any remaining funds are paid to you, the policyholder.
  • Claim payments are typically used to repair or replace the damaged property, protecting both you and the lender.

This process helps ensure financed property is restored and can continue supporting your business operations.

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.

The process is usually straightforward and requires you to:

  • Provide your insurer with the exact legal name and address of the lender or leasing company
  • Request they be added as a loss payee endorsement to the appropriate policy
  • Confirm the change with your lender to ensure it meets their requirements

Accuracy matters, so incorrect names or addresses can delay claims or cause compliance issues with your loan agreement.

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:

Does adding a loss payee affect your insurance cost?

In most cases, no. Adding a loss payee doesn't expand coverage or increase risk, so it usually doesn’t raise your premium.

However, failing to list a required loss payee can create problems. In some cases, lenders may purchase force‑placed insurance to protect their interest, which can be far more expensive and offer less coverage for your business.

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Updated: December 23, 2025
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