Knowing the difference between a named insured and an additional insured is important in order to manage insurance coverage efficiently. Both might sound similar but their responsibilities, rights, and coverage are quite different.
A named insured is the primary policyholder with full authority and extensive coverage, while an additional insured has restricted coverage, generally based on the actions or work of the named insured. Having an understanding of how these operate enables companies and individuals to make informed decisions to safeguard themselves and mitigate risks.
Named Insured Defined
A named insured is the individual or entity noted on an insurance policy who is covered by the complete protection and benefits under that policy. In most instances, this is the entity or person purchasing the insurance, paying the premiums, and making critical decisions regarding coverage. For instance, if you have a restaurant named Tom’s Tacos Inc. and insure it, the policy would name Tom’s Tacos Inc. as the named insured. A policy may also name more than one named insured, like a business and its owner.
The individual or business listed first are referred to as the “first named insured” and typically have primary responsibility for dealing with the policy. Named insureds also have the right to add others to the policy, either as an “additional named insured,” who has equivalent rights, or as an “additional insured,” who is given partial coverage without complete control.
Coverage and Liability for Named Insured
The named insured is the main policyholder and typically enjoys full liability insurance, complete coverage under the insurance policy. This would mean that they are covered from a broad list of risks and claims, as opposed to additional insureds, whose coverage is narrowed. Named insureds also have some responsibilities, like paying premiums, handling the policy, and approving changes or updates.
A comparison between named insureds and additional insureds reveals the most significant distinction: whereas additional insureds receive partial or situational coverage, the named insured receives the primary coverage and authority, which grants them greater protection and power over the policy.
Examples of a Named Insured
The named insured in auto insurance is the individual who purchases the policy, and the spouse and children are included as additional insureds but cannot modify the policy. In homeowners’ insurance, the signing homeowner is the named insured, and the rest of the household enjoys coverage without the authority.
In business insurance, the firm itself—such as XYZ Construction LLC—can be named as the insured, and this serves to shield personal assets by directing lawsuits against the company instead of individual employees. In life insurance, the premium-paying policy owner is named as the insured, but the beneficiaries get the payment without being named as insured.
Why Named Insured Matters
The named insured is important because it serves to keep insurance coverage uncluttered and straightforward. First, it creates clarity in coverage—everyone knows who the policy covers, so there is no confusion when a claim occurs. Second, it creates legal responsibility for both the courts and the insurers.
Third, it provides asset protection; for instance, if the business is the named insured, owners and workers are usually protected from personal liability. Lastly, determining the named insured facilitates risk management, enabling insurers to properly evaluate risk and price the policy correctly.
What Is an Additional Insured?
An additional insured is an individual or company that becomes included on someone else’s insurance policy, normally by way of an endorsement or following the commencement of the policy. They are not identical to an additional named insured, however, they do not have equal rights or obligations with the primary policyholder. Rather, they are provided with limited protection under the policy, generally in cases related to the named insured’s business or work activities.
For instance, suppose a property owner requests to be included on a contractor’s liability insurance while doing a renovation job. If a guest trips over machinery at the site and sues the contractor and the property owner, then the policy of the contractor would cover the property owner as well, since the accident was associated with the work of the contractor.
But if the property owner were being sued for something that has no relation to the project, the contractor’s insurance would not cover him. Additional insureds do not pay the insurance premiums and cannot make policy changes.
Costs of Adding an Additional Insured
Adding an additional insured to a policy will most times cost practically nothing. Insurance providers tend to view the added risk of adding an individual. However, additional insured coverage can sometimes lead to confusion or disputes.
For best results always ask some common questions like whether the policy covers the additional insured’s own mistakes or only claims that happen because of the named insured’s actions. These issues can occasionally lead to disagreements or even legal cases.
Overall, adding an additional insured is generally affordable, but it’s important to clearly understand what the coverage includes to avoid surprises.
Coverage and Liability for Additional Insured
An important question with insurance is just how much protection an additional insured really has. Additional insured coverage provides special individuals or companies with coverage under another company’s policy, but there are limits to it.
In general, the coverage only responds to claims related to the named insured’s acts or work. There can also be exclusions that keep the additional insured from being covered in some cases, such as their own independent errors.
Who Should Receive Additional Insureds?
At times, big companies request smaller firms to name them as additional insureds, which is odd but normally occurs because the smaller firm wants to do business with the larger client. An example is commercial landlords who insist on tenants naming them as additional insureds so they are covered if there is an accident or loss on the property of the tenant. Equally, general contractors can request that subcontractors list the contractor and property owner as additional insureds.
In case there is an accident during the execution of the subcontractor’s work, this will cover the contractor and owner under the insurance of the subcontractor. Manufacturers similarly apply this mechanism by listing product sellers as additional insureds in their liability policies. This provides vendors with assurance that any claims related to products will be addressed, which allows them to sell without fear.
When to Add an Additional Insured to Your Policy
You may want to add someone as an additional insured in a situation where you need additional protection for your business. For instance, if you are initiating a new job at a customer’s location or dealing with a new subcontractor, before collecting the construction materials or starting the work including these as an additional insured may safeguard you against claims related to the job.
Another is commercial property insurance. If you do business from someone else’s property, listing the property owner as an additional insured can benefit you in case a claim is made under their policy.
The most important rule is, whenever a contractor, tenant, or vendor is on your property, ensure they add you as an additional insured on their insurance policy. Always review the Certificate of Insurance (COI) prior to commencing work. It’s good practice to verify this coverage with their insurance agent directly, because errors or fraud can occur very commonly. Pre-cover verification keeps your business safe.
Who Can Be an Additional Insured?
For someone or a company to become an additional insured, they typically have to have a legitimate business connection with the named insured. In short? additional insured coverage is for individuals or organizations who might be liable for anything related to the work or business activities of the named insured.
Additional Insured vs. Additional Named Insured
Feature | Named Insured | Additional Named Insured | Additional Insured |
Definition | Primary person or business on the policy | Another person or business added with full coverage benefits | Person or business added for limited coverage |
Coverage | Full/comprehensive coverage | Full/comprehensive coverage | Limited coverage, usually tied to named insured’s work |
Policy Control | Can make changes, pay premiums, cancel policy | Cannot pay premiums or manage policy, but has full coverage benefits | Cannot make changes or manage policy |
Responsibilities | Responsible for premiums, policy management | No obligation for premiums or administration | No responsibilities for the policy |
Use Case | Main policyholder | Another entity that needs full coverage without responsibility | Parties needing protection for specific risks related to the named insured |
Named Insured's Control Over Additional Insureds
The named insured has the power as the primary policyholder to add or subtract additional insureds from the policy. This gives them control over the individuals who are being insured and under what circumstances. When making such decisions, named insureds must weigh the possible risks and obligations involved.
Open communication with additional insureds is also crucial in order to eliminate misunderstandings and ensure each party knows their coverage. Proper coordination on the part of named insureds ensures they can effectively handle their policy while maintaining information and protection for additional insureds.
How to Use Named and Additional Insureds to Protect Your Business
Deploying both named insureds and additional insureds strategically can provide your business with better protection. Here’s a quick example for you to understand better. Suppose that Jack and Jill have a consulting firm with two divisions: J&J Copywriting as their primary venture, and J&J Graphic Design as a smaller enterprise. To remain covered, they purchase both general liability insurance and professional liability (E&O) insurance.
They name J&J Copywriting as the named insured and include J&J Graphic Design as an additional named insured. In this manner, both companies are fully covered, but facing premiums and policy changes remains the responsibility of J&J Copywriting.
Later, Jack and Jill acquire a large client, NBC Corp., which requests to be included as an added insured on their policies. This implies NBC receives limited coverage for any claims related to Jack and Jill’s activities.
Throughout the project, J&J Graphic Design designed a logo for NBC. Shortly thereafter, NBC was sued for trademark infringement due to the fact that the logo resembles that of another company. As the problem originated as a result of J&J’s work and NBC was included as an added insured, the professional liability policy covers both J&J and NBC in the lawsuit.
This demonstrates how bringing together named insureds and additional insureds ensures everybody is protected, both your businesses and your clients receive proper coverage.
Conclusion
The named insured and additional insured play different parts in an insurance policy. The named insured is the main policyholder, who takes care of the policy and receives full coverage. Additional insureds obtain limited protection, typically relating to the named insured’s business or business activities, with no control over the policy or premium responsibility.
Knowledge of the differences ensures adequate coverage, minimizes risks, and allows for clear responsibilities, ensuring both companies and individuals remain protected in case of claims or lawsuits.
FAQs
What is a named insured?
The named insured is the primary individual or business named on an insurance policy, who is in charge of it and pays for premiums.
Who can be an additional insured?
An additional insured is an individual or business added to a policy to receive limited coverage, typically related to the named insured’s job.
Can an additional insured make changes to the policy?
No, it is only the named insured who can make modifications, pay the premium, or terminate the policy.
Why do companies need additional insureds?
Companies need additional insureds because they want to protect themselves from the responsibility associated with contractors, tenants, or suppliers.
Does adding an additional insured add to the cost of the policy?
In most cases, adding an additional insured will have a negligible cost relative to the overall insurance premium.
