Insurance Q&A: “What is a named insured?”
You may come across this term when you are shopping for insurance coverage.
While there shouldn’t be any trouble figuring out who a particular named insured will be for an insurance policy, it’s important to understand why an individual (or entity) is a named insured and what rights/obligations come with being designated as such.
So, Who is the Named Insured?
The “named insured” on any insurance policy is the individual(s) or entity that is listed by name on the declarations page.
It is important to note that on a personal lines insurance policy, homeowner’s insurance for example, a spouse is automatically considered a named insured even if he or she is not listed, as long as they live together.
There are a few rights and obligations of being a named insured on a particular policy:
1. A named insured is required by policy conditions to immediately report any losses to the insurance company.
Ultimately, if you are not listed by name on a particular insurance policy (or the spouse of someone who is), you will not be filing insurance claims for financial compensation in the event of a loss.
2. A named insured may assign a policy to another party (subject to the insurer’s approval). An example may be when a particular property is sold; the named insured can request the policy be transferred to the new owner.
This is a LONG SHOT, as the new party would be subject to the insurer’s underwriting guidelines. This was more common many years ago when insurance policies were much less complex from a pricing standpoint.
3. Only a named insured can request a mortgagee clause be added to a property policy.
For the record, the individual or entity referenced in the mortgagee clause would be notified if the property policy cancelled. This is when lender forced property coverage would come into play.
What About the First Named Insured?
This one’s easy. The first named insured on any policy is the person whose name is listed first on the declarations page.
There may be more than one “named insured” on a policy, but someone has to be the first! Why does this matter?
There are a few situations in which being the first named insured will come into play during a particular policy term:
1. An insurance company is only obligated to send a policy cancellation notice to the first named insured.
The only exception to this rule, discussed above, is when a mortgagee is added to a policy.
2. Loss reimbursement checks (claim payments) are made out to the first named insured.
Note: Larger property claim payments, in which there is a mortgagee, above $10,000 for example, must also be signed by a representative from the lender or lien holder.
Why? The lending institution, which technically owns your home, is certainly going to want to be involved in the claim payment process.
They don’t want you cashing a $15,000 check for a roof damage claim and not actually making the repairs to the property!
3. The first named insured must be the one to formally request a policy be cancelled.
Who Else is Automatically “Insured?”
You do not necessarily have to be “named” by name on a policy in order to be covered as an insured.
You would have to read your policy “Definitions” to determine who will technically be “insured.”
The best example of an insured (by definition and not “name”) would be relatives or children who reside in your household on a homeowners or renters insurance policy.
Their individual names will not be listed anywhere in the policy, but they are certainly covered from a liability standpoint.
What About Additional Insured?
Most of the examples above deal with personal lines insurance policies such as homeowners, auto and renters policies.
Things get pretty complicated in a hurry when we’re talking commercial insurance.
An additional insured is an individual or entity other than the named insured that benefits from the coverage offered by the policy.
For the record, adding additional insured is usually FREE depending on what type of business you operate.