A loss payee is a person or company the insurer must include when it pays a claim on specific property. It’s typically the bank that financed a vehicle or piece of equipment, or the company that leased it. On real estate, the equivalent party is the mortgagee, named under a mortgage clause.
Being a loss payee doesn’t make the lender an insured. It gives the lender a right to be paid, often on a joint check with the named insured, so the collateral gets repaired or the loan gets paid off.
Types of loss payable wording
Commercial property and auto forms offer several versions, which give the lender different levels of protection:
- Loss payable: the lender is paid as its interest may appear, jointly with the insured.
- Lender’s loss payable: gives the lender more rights, similar to a mortgagee. The lender can still collect even if the insured breaches a policy condition, and it gets advance notice of cancellation.
- Contract of sale: for property being sold on installment.
Lenders’ loan documents usually say which version they require.
How it shows up in an agency
A contractor finances a new excavator. The lender’s insurance requirements arrive by email: “XYZ Bank, its successors and/or assigns, as lender’s loss payee, with 30 days’ notice of cancellation.” The CSR adds the excavator to the inland marine equipment schedule with the lender as lender’s loss payee, then issues an evidence of property or a certificate showing the interest.
Common confusion
- Loss payee vs. additional insured. Lenders want a loss payee on the property. Additional insured status is a liability concept. A lender usually doesn’t need both.
- Leased autos often need the lessor as both loss payee (for physical damage) and additional insured (for liability). Check the lease.
- Payoffs. When the loan is paid off, remove the loss payee so future checks aren’t delayed.