What is a named insured?

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.

Named Insured Definition

The “named insured” on any insurance policy is the individual(s) or entity that is listed as the name of insured on the declarations page. The named insured may be a sole proprietorship, partnership, corporation or another type of entity.

The named insured has a broader coverage and protection than any others types of insureds. However, there can be more than one named insured. For example, a business entity may be the only named insured, but the business owner or subsidiaries can also be named insureds.

A named insured is responsible for choosing the coverage types and amounts, will receive the premium notice or any notice of cancellation, and is also responsible for paying the insurance premium.

It is important to note that on a personal lines insurance policy, homeowners insurance for example, a spouse is automatically considered a named insured even if they are 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 insured name 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 as the name of the insured.

There may be more than one “named insured” on a policy, but someone has to be the first! It matters who is the first named insurance policy holder. Why does this matter?

There are a few situations in which being the first named insured person 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 policy or renters insurance policy.

These individuals will not be named insurance policy holders, but they are certainly covered from a liability standpoint.

What about additional insured?

Most of the insured name 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 driver is an individual or business entity other than the named insured driver that benefits from the coverage offered by the policy. An additional insured will have the same rights as a named insured driver, except that he/she won’t be responsible for the payment of premiums. They can be entitled to notice of policy changes and cancellations, and have the same policy coverage as the named insured driver, but share the policy limits.

Your insurance agent will be able to walk you through these terms and ensure that you’re properly covered.

For the record, adding additional insured is usually FREE depending on what type of business you operate.