Today we’re going to be discussing the difference between named insured vs additional insured. But before we do, it’s important to get a bit of background. For that, let's begin with the concept of business insurance.
As an entrepreneur you likely have a number of different insurance policies that fit under the category of business insurance. Each policy that you have protects a different area of your business. For example, as a business owner – whether you’re a contractor, a consultant or a daycare operator – you know that you need general liability insurance. This is your first line of defense in case you are sued for damages caused to third-parties or their property from accidents on the job. This is a valid concern in every industry, and a risk no one wants to take.
Similarly, like many professionals, you may choose to bundle professional liability into your policy. Also known as errors and omissions, it offers an added layer of protection against civil lawsuits and negligence claims. In addition, there is health insurance, commercial auto insurance, workers’ comp, and property insurance to name but a few. Whether or not you need them all depends on the nature of your work. Some, like worker’s comp are the law if you have employees. That means they’re non-negotiable. Others like general liability insurance are required for landing jobs certain jobs. So they're pretty necessary as well. And others, like property insurance, may be up to you. That is, determining if the cost versus the risk is worthwhile is a personal matter, for you to decide.
What Does Named Insured Mean?
So now that we’ve covered the types of policies to consider, it’s time to move on to the question at hand. And that's understanding named insured versus additional insured. Let’s begin by clarifying our terms starting with a named insured.
In a nutshell a named insured is exactly as it sounds. That is, a named insured is the person or business who is explicitly named on the insurance contract. If you are the named insured, your name usually appears on the first page of the contract, often within the first few lines. You are also be the one to sign the insurance contract. By the way, there can be more than one named insured on a policy. If that's the case, usually the person listed first holds the primary responsibility.
As the signed policy holder, the named insured is generally responsible for purchasing the policy and paying the premiums. However, in some cases it is possible for someone else to purchase a policy for you. Same goes for paying premiums. This is in fact fairly common for certain types of insurance. For example, many employers pay for employees’ auto insurance or health insurance. For liability insurance, however, this setup is far less likely.
In terms of benefits, the named insured is 100% entitled to all the coverage and payouts of the policy. In addition, the named insured can add people to the policy as desired.
What Does Additional Insured Mean?
Next up, we need to understand what an additional insured is. Basically, it is any individual or organization that you add to your policy. This entity then enjoys full coverage from your policy without being responsible for its premiums or upkeep.
For example, consider what an additional insured on professional liability means. Essentially, this is a any entity added as an additional insured on professional liability policy. This entity is then covered from errors and omissions liability in the same way as you are. Still a bit confused? Let's keep going.
Main Differences between the Two
While it's true an additional insured is covered, there are limits to the coverage provided. That is the biggest difference between the concepts of named insured vs additional insured. A named insured is always covered, while an additional insured has certain limitations. More specifically, for them, only incidents that are related to the primary policy holder’s work and responsibilities are covered.
If that seems tricky, you can think of it like this. If you’re a spinning instructor who wants to teach a class at a local gym, you may need to add the gym to your liability policy as an additional insured. This protects the gym from accidents that may happen during your class. However, you are not responsible for what else goes on in the gym. Your coverage for the gym as an additional insured, as such, is limited in scope by your activities and presence. The same rationale extends across all professions – DJs, electricians, and barbers alike. If the injury or damage isn’t related to you as the primary insured, then the additional insured isn’t covered either.
Also, there’s a difference in how each party is added to a policy. The named insured, of course is explicitly named on the contract from the get-go. The added insured, however, is only added at a later date, as the need arises. And similarly, they may not be included on the policy per se.
What about an Additional Named Insured?
If all that terminology wasn't confusing enough, here's another one to consider – an additional named insured. And it's quite a mouthful indeed! But don't worry, we'll simplify.
So what’s the difference between an additional insured vs additional named insured you ask? The named additional insured essentially has more rights than an additional insured. And in turn, more extensive coverage. Let us explain.
Like the name insured, the additional named insured is explicitly named in the policy. This person is usually named a bit further down in the contract. Or alternately, in an official addendum attached. This gives them the full policy coverage without the limits of an additional insured. That is, the coverage they get isn't job or gig related. Nor is it time bound. As long as the premiums are paid, they're included in the coverage. And it's not only potential payouts they get. They also have some control. For example, the additional named insured is also entitled to notification if the policy is changed or cancelled.
So what's the "down" side? For the additional named insured there isn't one really. For the additional named insured, it's pretty much all benefits. With the named insured typically responsible for paying premiums, they're off the hook.
So why would you grant someone the status of an additional named insured? Usually this is a partner, a co-owner, or even a family member of the original named insured. In other words, generally, an entity that is close to the policy owner, with the same risks and interests.
A Few Final Words
It may be a bit baffling to understand the differences between a named insured, additional insured, and named additional insured. The terms sound so similar, they can be hard to decipher.
So if need be, feel free to read through this article again. Once you familiarize yourself with the specifics, you’ll see they’re actually fairly intuitive. And once you understand how they work, you can decide what works best for your business. That means choosing who should be the named insured on any policy. And similarly, if you want or need to add any additional insureds.