Ask a business owner for their advice, and it won’t be long before they land on this sentiment: expect the unexpected. It’s true. Best laid plans fall apart, and there’s no way to predict the different hurdles your business will need to make it over.
Fortunately, you don’t need to freefall when a wrench gets thrown in. Business insurance can protect you when unforeseen circumstances threaten to throw you off track.
As you consider insurance policies and other risk management options, you’ll likely hear the term “additional insured” come up. But what does this mean? And what do you need to know about it? We have all of your answers right here.
What Is an Additional Insured?
An additional insured is a person or group who is covered under an insurance policy, despite the fact that they’re not named in the original policy. With an additional insured endorsement, these people are protected under the original named insurer’s policy and can make a claim if needed, but they aren’t the policyholder.
Let’s clarify this with an example. Imagine that you own a pizza shop, and you employ a few delivery drivers. You could name your delivery drivers as additional insureds on your business insurance policy so that they’re covered if something were to happen—for example, they hit a parked car while delivering a pizza.
Additional insured coverage is requested on a variety of different types of insurance policies, including commercial general liability (CGL), professional liability, commercial auto insurance, property insurance, and more. However, it’s most commonly requested on a commercial general liability insurance policy.
What Is an Additional Insured Endorsement?
A typical insurance policy provides insurance for the parties listed in the policy (which you might hear referred to as the “named insured”). An additional insured endorsement is an amendment to the original policy that extends the insurance coverage to other people who aren’t named insureds in the original policy.
Typically, additional insureds fall into two categories:
- Named individuals: Additional insureds are listed by name in the endorsement (i.e. your delivery driver, Joe Smith).
- Blanket endorsement: Additional insureds are covered under a general description of the groups that might need coverage (i.e. “Delivery Drivers”).
Take note that there needs to be some sort of business relationship between the original policyholder and the person or group they’re adding to their insurance policy. You can’t just add anyone and everyone.
How Do You Get an Additional Insured Endorsement?
Getting this endorsement is relatively simple, especially if you work with an insurance agent who can guide you through the process.
How you get an additional insured endorsement added to your own insurance will depend on your insurer, your specific insurance policy, what type of endorsement you need, and more. But generally, it works like this:
- Know who you want to add as an additional insured and whether or not you’ll name them or get a blanket endorsement
- Connect with your insurance agent to understand if an additional insured is an option with your existing policy
- Fill out an additional insured endorsement form, which you should get from your insurance company or your insurance agent
If all goes well, the additional insured endorsement is typically added as a separate document (in other words, an amendment) to your original insurance policy. Once that amendment is added, the people or groups you listed achieve additional insured status.
Do Certain Industries Use Additional Insured More Than Others?
Additional insureds are common in a variety of industries and businesses. Let’s look at a few places where you’ll see these crop up most frequently:
- Large Companies: Bigger companies who have business relationships with small businesses will often request to be added as an additional insured on the smaller business’ policy. Since most big businesses often work with numerous different types of smaller companies, it’s typically easier for them to be added to the small business’ policies rather than needing to add every small business to their own policy.
- Housing and Building: There’s a lot of risk and potential for lawsuits in this industry, which means additional insureds are commonplace.
- Landlords: Commercial building landlords will often request to be added to their tenant’s insurance policies.
- General Contractors: General contractors might request to be added as an additional insured on their subcontractor’s insurance.
- Manufacturers: Those who produce items that are sold by other sellers frequently add their sellers to their insurance policies so that they’re covered by their product liability policy.
That’s by no means an exhaustive list, as additional insureds happen in many other industries. However, the above are definitely frequent users of these types of endorsements.
Does It Cost Something to Add an Additional Insured?
Yes, since this endorsement extends insurance coverage to other people or parties, there is a cost associated with it. However, it’s typically pretty minimal and a substantially lower cost than a standard policy premium.
How much it costs will depend on your policy and the type of endorsement (blanket versus named individual) you’re adding. Most insurance companies charge per additional insured, starting at $25 per policy term, with a typical policy term being one year.
To get the specifics on how much this will cost you as a business owner, connect with your insurance agent or insurer.
Why Is an Additional Insured Important?
Because this comes at a slight cost, we can’t blame you if you’re wondering about the benefits of an additional insured.
Fortunately, the biggest advantage is relatively straightforward: It provides more protection. If you have individuals or groups doing work on behalf of your business, they’re covered under your (as the original policy holder) insurance.
Let’s return to our example of a pizza delivery driver. If your driver caused some sort of property damage—let’s stick with our example that he hit a parked car on his way to deliver a pizza—he’d be protected from any lawsuits or other fallout by your insurance policy, because he was added as an additional insured.
It’s important to note that this liability coverage is only applicable when the additional insured is doing work on behalf of the original policyholder. If your delivery driver hit a parked car while running a personal errand, then he wouldn’t be covered by your insurance policy—because he wasn’t working on your behalf at that point.
Can an Additional Insured File a Claim?
Yes, since an additional insured is covered by the insurance policy, they can file a claim. However, more frequently, the original policyholder is the one who files a claim on behalf of the additional insured. If you need to make a claim, your first step is to contact your insurance company and provide the details of what happened.
The claims representative will give you the appropriate directions on how to file your claim, whether they do that for you over the phone, point you to a specific website, or send you some paperwork to fill out and submit. That differs from insurer to insurer and policy to policy.
While you can make a claim as an additional insured, it’s still best for business owners to have their own insurance policies. In fact, it’s common for clients, lenders, subcontractors, or any business that you’re doing work with to request that you carry appropriate insurance and provide proper proof of that coverage (in the form of a certificate of insurance).
Has COVID Presented Any Changes for Additional Insured?
The COVID-19 pandemic has turned the world on its head. The insurance industry hasn’t been immune to change, particularly when it comes to business interruption insurance. However, with that regard to additional insureds specifically, not much has changed.
Why? Well, most standard commercial policies have fine print that excludes losses caused by viruses, bacteria, and pandemics—something that many insurers put into practice after the SARS outbreak in the early 2000s.
With that said, insurance companies that didn’t explicitly exclude pandemics from their policies will likely carefully review how much coverage an additional insured gets (and whether or not they’re charging enough for that coverage).
But, on a broader scale, there haven’t been many shifts for additional insureds amidst the continuing pandemic.
Protect Your Business Against the Unexpected
You can’t predict everything, and that’s why appropriate insurance coverage is so important for your business.
If you have business relationships with other people or groups who work on your behalf, it can be a wise move to add them to your insurance policy with an additional insured endorsement.
It sounds fancy, but it doesn’t need to be that complicated. Use this as your guide to understand the basics. When you’re ready to move forward, contact an insurance agent or your insurance company to figure out your best next steps—and then rest easy with some added peace of mind.