What is an additional insured?
An additional insured is a party other than the policyholder who has an interest in whatever is being covered. Homeowners insurance typically covers you and people living in the house who are related to you. That can leave some people exposed.
For example, let’s say your mother leaves you and your brother a house, but only you live in it. You buy homeowners insurance, so you’re the policyholder and the person who receives the policy’s protections.
However, your sister is also an owner and can be sued if someone suffers an accident on the property. She may lose money if the home is destroyed in a fire. This means she also has an insurable interest, an making her an additional insured on your policy extends its liability coverage to her and gives her the right to file a property claim.
It’s also worth noting that additional insureds aren’t always people. In many cases, mortgage lenders require borrowers to list them as additionally insured parties. This helps ensure their lien will be satisfied if something happens to your house. In other cases, contracting businesses performing work on your property, commercial tenants, and other businesses with insurable interests in your property may also be listed as additional insureds.
You might also hear the term additional insured used to describe the actual endorsem*nt (also called a rider) that extends your insurance coverage to the other party. Endorsem*nts essentially modify your policy. In the case of your homeowner's insurance, an additional insured endorsem*nt alters your policy to provide coverage to someone who has a financial stake in your home but isn’t automatically covered. Additional insured endorsem*nts may have a nominal fee associated with them.
Additional insured vs. named insured
People often use the terms additional insured and named insured when talking to an insurance company or someone who wants a certificate of insurance. The named insured is any person or organization specifically designated as insured by a policy. More often than not, the named insured on homeowners insurance is the policyholder, or owner, and has all rights to control the policy. This means the named insured can change coverage or even cancel the policy.
Because an additional insured doesn’t own the policy, they can’t make any changes to the coverage. They do, however, get the benefits of the policy if a claim is filed, including having their legal fees covered if they’re named in a lawsuit over events occurring on the insured property. Moreover, additional insureds can file property claims on the insured house.
Benefits of an additional insured
Listing lenders, tenants, or other parties with interests in your property as additional insureds can make a lot of sense. It protects both you and those parties should a covered event cause financial losses. If those parties weren’t listed as additional insureds, damage to your home could trigger lawsuits, costing you time and money.
How an additional insured endorsem*nt works
To understand how an additional insured endorsem*nt works, let’s first review how the liability coverage in your homeowner's insurance. Liability coverage covers claims where someone says you’re responsible for their property damage or bodily injury. For instance, if someone claims your dog bit them or your child broke their window, your policy may cover their medical or repair bills as well as your legal costs if they sue.
But homeowner insurance usually only pays these costs for:
The named insured.
Relatives of the named insured.
People who are younger than 21 years old and under the care of the named insured or another resident of the home.
This means that if your significant other moves in and their dog bites a visitor, your partner could be on the hook for the visitor’s injuries. However, getting an additional insured endorsem*nt expands your coverage to include the new party.
When do homeowners need an additional insured endorsem*nt?
We’ve mentioned two examples when you might want to get an additional insured endorsem*nt. The first is if you share ownership with someone who doesn’t live on the property, such as siblings inheriting a home but only one choosing to live in it. The second is if someone who isn’t a relative, like a significant other, moves in with you. Similar situations include:
Taking a mortgage out on your home.
Bringing in roommates.
Sharing ownership with an ex-share.
Buying a vacation home with another family.
Selling your home under a long-term contract that allows the purchaser to occupy it.
A person or organization typically asks to be an additional insured because they have an insurable interest in the property (i.e., They could lose money if something happened to it). Clearly, that’s a benefit for them, but it’s also good for you. Making sure everyone’s financial interests are covered reduces the chance of legal finger-pointing if things go awry.
