What is the difference between additional interest and additional insured?

If you’re a small business owner, you might find yourself in many situations that require you to think beyond a templated insurance policy. As soon as you start interacting with clients, the public, lenders, landlords, and the like, you will need to start considering if your insurance policy extends as far as it needs to.

If you come across potential gaps in your coverage, two ways you might address them are through additional interest and additional insured endorsements.

Although the two terms may sound similar, they differ in how and when these provisions should be used and what they offer. By understanding the differences between additional interest vs. additional insured, you’ll be able to know which one (if any) you should add to your commercial policy.

An additional interest is a third party who benefits from being added to an insurance policy but does not need actual coverage.

Typically, these third parties have a financial stake in what’s being insured. Because they have money tied up into what’s in the policy, they have a vested interest in making sure it’s covered. Being added as an additional interest ensures they would be informed about any policy changes, including cancellations and renewals.

The most common additional interests are people, banks, or lienholders who provided a commercial loan. These creditors would like to know if the item they lent money for is no longer insured. This could indicate that the borrower is in financial distress and may be unable to keep up with business loan payments. As an additional interest on an insurance policy, they would be notified if coverage lapses.

For instance, if you took out a loan to buy new machinery, then the bank would like to know that you have commercial property insurance to protect against damage and theft of that machinery in the event of a fire, vandalism, and so forth.

Or, if you are financing a business-owned truck, then the creditor will most likely want to be listed as an additional interest on your commercial auto insurance policy so they know the truck has the appropriate insurance coverage.

An additional insured is an endorsement that provides insurance coverage to a third party. This is most often because there is some business relationship, such as a contractor/subcontractor or client/vendor, that creates liability exposures for the third party.

The named insured adds the additional insured to the policy to offer them a layer of protection so they don’t suffer financial loss if a mishap or incident occurs. For commercial insurance, this is most often added to general liability policies, but can also extend to commercial auto and property policies.

Both parties in a business agreement can request additional insured status—it just needs to be worked out between the two. For example, if one of your subcontractors causes an accident that leads to you being sued, if you’re an additional insured on their policy, you can make a claim to pay for the damages and legal fees, rather than relying on your own insurance.

Or, if you own a cleaning business and work in a commercial building, you can ask to be listed as an additional insured on the property owner’s insurance policy. If an accident occurs and your company is sued for negligence, the landlord’s insurance policy will protect you by paying your attorney’s fees and legal expenses.

In both cases, those involved maintain some financial interest in what’s being insured—whether directly as owners or leasing companies, or less directly as a third party who could be sued in the case of an accident or loss.

The main difference between additional interest and additional insured endorsements involves how the insurance company views those listed.

In the case of an additional interest, they are not considered as insured and receive no direct financial benefits. Therefore, they cannot file claims or collect payouts. As a lienholder, mortgage lender, etc., they are simply interested parties who have a stake in what’s insured in the renter’s insurance policy, auto insurance policy, or similar.

Also, because they are not the named insured, they cannot make changes to the insurance policy. They simply receive notifications when those changes occur.

Those named as an additional insured, however, are offered liability protection on the policies they are added to in the form of defense coverage benefits from third-party lawsuits. It’s always a good idea to talk to your insurance agent or check your policy’s declarations page to see what’s exactly covered.

Additional insureds can request a certificate of insurance (COI) from the policyholder to confirm their status since they should be listed as such on the COI.

Another form of endorsement, separate from an additional interest and additional insured, is a loss payee.

A loss payee is added as a rider on a commercial property insurance policy. They are given first rights on insurance claim payments after a property loss because they have an insurable interest in the property and receive precedence. But again, loss payees are only eligible for property damage coverage.

On the other hand, additional insureds only receive liability coverage. If protection is needed in both areas, the third party should be listed as both a loss payee and additional insured.

While adding an additional interest does not affect the insurance premium, the same is not true for an additional insured. Because an additional insured extends coverage, there is typically a small increase in the premium cost.

The easiest way to determine whether to add an additional interest or additional insured endorsement is to ask yourself if the third party needs insurance coverage and direct financial benefits, or if information about coverage would suffice.

If information is all that’s needed, adding them as an additional interest should cover their bases. However, if the third party is looking for payouts and claims, then you would need to add them as an additional insured.

Let’s look at some examples, depending on the type of policy:

You’re a subcontractor doing weekly lawn maintenance for a landscape company’s clients. The landscaping business wants to make sure they are covered in case you accidentally damage a customer’s property and are sued.

Choice: You add the landscaping company as an additional insured.

You own a property and rent it out for private events. You want to have coverage in case there is an accident during your tenant’s rental, and someone sues.

Choice: You request to be added as an additional insured on the renter’s general liability policy.

Additional interests are generally not named in general liability policies because most third parties would more than likely want coverage under the policy, meaning they would need to be listed as an additional insured.

You bought a new company-owned vehicle with financing. The lender wants to know if you have suitable auto coverage in case of an accident.

Choice: You add the lender as an additional interest.

You’re leasing the vehicle. Unlike the first example, you are not making payments to purchase the automobile and won’t own it when the lease is up. The leasing company wants to make sure they are covered if their asset is damaged.

Choice: You add the leasing company as an additional insured. Note that this may also be a requirement in the lease agreement.

You’re financing your building. Your bank wants to know if you have adequate property coverage in case of a fire, theft, wind-related event, or vandalism.

Choice: You add your bank as an additional interest.

You own your business property with other partners. Your co-owners want to make sure they’re covered in the event of a loss.

Choice: You add your co-owners as an additional insured.

You’re renting your business space. Your landlord wants to know your rental property is insured so your small business can continue—and you can keep paying rent—if something happens to the building.

Choice: You add your landlord as an additional interest.

In this case, you would not want to add the landlord to your policy as an additional insured, because then you would be wholly responsible for damage to the building and structure itself, instead of the landlord.

You’re a graphic designer hired by a tech company for a 12-month contract to work on a special project. They require you to have professional liability insurance for the duration of the project.

Choice: You add the tech company as an additional interest.

Clients usually can’t be added to a professional liability insurance policy (also known as errors and omissions insurance, or E&O insurance) as additional insureds. An insurance company will argue the client is not a licensed professional and therefore can’t be held to the same standard of care as a licensed professional.

However, depending on your business type or industry, you may be able to ask for another policyholder to be added as an additional insured on your professional liability insurance policy.

The process of adding an additional interest or additional insured to your policy slightly differs from one another.

Putting an additional interest on your policy is very straightforward. Often, it only requires contacting your insurance agent and giving them the third party’s information. More than likely, your premium will not change.

Adding an additional insured to your policy will require a little more thought than an additional interest. The first step is to consult with your insurance agent.

They will help you review your current policy, identify whether an additional insured rider can be added (and is reasonable), assess the level of coverage the additional insured is requesting, and discuss any changes to your insurance premium and limitations that may apply.

Then, you’ll need to fill out and submit an additional insured endorsement form. Once the form is approved, you will have successfully added your additional insured endorsements to your policy. You can then find your additional insured on your policy’s certificate of insurance.

Insureon helps small business owners get insurance coverage that best fits their unique business needs—including endorsements like additional interests and additional insureds. You can get started by filling out our easy online application to get free insurance quotes from top-rated insurance carriers.

Our expert insurance agents are available to answer any questions and help you find affordable small business insurance for your needs. Once you find the perfect package for your small business, coverage can begin in less than 24 hours.