What Is an Additional Insured?
An additional insured is a status that grants coverage to an individual or organization on an insurance policy held by a separate policyholder. With additional insured coverage, the individual or organization is protected in the case of a claim or lawsuit that results from their actions while working with the policyholder.
Whether you’re a very small brick-and-mortar business or large manufacturing operation, having small business insurance is essential to protecting your business in the event of a claim or lawsuit. This being said, however, finding and purchasing the right insurance policy isn’t always easy—especially when it comes to more nuanced coverage options, like an additional insured.
What is an additional insured? Do you need an additional insured endorsement on your insurance policy? This guide is here to help. We’ll explain everything you need to know about this insurance topic including what it is, what coverage looks like, what it costs, and how to know whether or not you need an additional insured on your policy—plus, what to do if you do need this endorsement.
Additional Insured Definition
In short, an additional insured is an individual or organization covered under your business’s insurance policy, other than you, the policyholder. When you add another business as an additional insured on your policy, your policy will cover that business if they are sued as a result of your actions. In this way, the reverse is also applicable—if you another company adds your business as an additional insured on their policy, you’ll be protected under their policy if you’re sued as a result of your actions working with them.
Generally, an additional insured is added to a general liability insurance policy, but can also be added to other liability policies like commercial auto insurance, property insurance, or professional liability insurance. An additional insured is included on an insurance policy in the form of an endorsement (as shown below), or amendment to the policy, which is usually attached to the original contract.
Most often, an additional insured endorsement is used to protect contractors and the businesses they work with.
Here’s an example of an additional insured endorsement that would be used to add the city of San Diego to the general liability policy of any business that wants to film on city property. Image source: Sandiego.gov
How Does an Additional Insured Endorsement Work
With this basic definition in mind, let’s use an example to clarify how an additional insured endorsement works.
As we mentioned, an additional insured is typically added (in the form of an endorsement or amendment) to a business liability insurance policy to protect both parties in the case of a lawsuit—most often, this is necessary for situations in which working with the additional insured (the third party) opens up the policyholder (you) to new risks—or vice versa.
For instance, if you’re a landlord, you might require that a contractor doing work on your building list you as an additional insured on their general liability policy. In this case, if you were to be sued for an event that happened as a result of the contractor’s work, say, if a ladder fell on a tenant and they sued, you would be protected under the contractor’s liability insurance (as shown in the illustration below).
Although your own general liability insurance may very well protect you in the case of this claim, being protected as an additional insured under the contractor’s policy saves you from having to utilize your own policy. This can prevent your insurance costs from going up and allows you to maintain your claim history with their insurance company.
This being said, depending on the type of business you run, you may find instances in which you’ll request that another business add you as an additional insured on their policy, or, conversely, instances where another business asks you to add them as an additional insured on your policy.
As another example, say you’re a contracted hairdresser working in a hair salon. The hair salon may request that you add their business as an additional insured on your liability insurance policy. In this way, if the hair salon were to face a business lawsuit for something that happened as a result of your work, say if a client slipped and fell on a wet floor around your station, they would be covered under your policy (as illustrated below).
Again, this is then beneficial for the hair salon, as they don’t have to worry about filing a claim with their own insurance company, and the rising insurance premiums that would come with it.
What Does an Additional Insured Endorsement Cover?
So, if you were to add an additional insured to your business’s insurance policy, what does that cover?
Generally, any additional insured included on your insurance policy is protected by the coverage the policy provides—which can include protection in the case of legal claims and lawsuits and any costs associated with the defense of the business or settlements. This being said, adding an additional insured to your policy does not change your existing coverage, but instead, it specifies that your work is protected in relation to your actions with the additional insured, as we explained in our examples above.
This being said, on the whole, if a claim is filed in relation to an additional insured endorsement, the primary policy holder’s insurance should cover that claim first. So, if you’re an additional insured on another company’s policy and a claim is filed against you, that insurance policy should cover you first, and only after you’ve exhausted that coverage, would your own policy apply.
With this in mind, though, it’s important to note that the additional insured is usually not granted the full amount of coverage that the policyholder has. An additional insured may only be covered under the policy for a specific amount of time, or may only be protected in the case of a particular type of liability. Similarly, if you have multiple additional insureds on your policy, their coverage may vary based on the terms of their endorsement and how they interact with your business.
To clarify, it helps to think of it like this: In the second example we discussed above, where you, as a hairdresser, add the hair salon to your insurance policy, the additional insured coverage for the salon only extends to your activities and presence while working in the hair salon. If the hair salon has other issues, say, if someone slips and falls outside of the store, their status as an additional insured on your policy does not apply. Their coverage as an additional insured on your policy is limited only to things that happen as a result of you, the policyholder, working at the salon.
However, in certain scenarios, it may be necessary to add a blanket additional insured endorsement to your insurance policy. Unlike a typical additional insured endorsement, a blanket endorsement awards all additional insureds on your policy the same coverage. This type of additional insured endorsement is often used for commercial auto insurance, where a business wants to add all employees who drive a company vehicle to their policy.
Of course, all of these specifics depend on your business’s policy, the additional insured endorsement itself, and the company that provides your insurance.
Named Insured vs. Additional Insured
With all of this in mind, it’s important to distinguish between a named insured vs. additional insured, as these two terms are both often used to discuss this facet of business insurance.
A named insured (which can be different from the policyholder) is the person or business that an insurance policy is purchased to cover. For example, if you buy a liability insurance policy for your business, ABC Contracting, then ABC Contracting is the named insured. The named insured is listed on the original contract for the policy.
An additional insured, on the other hand, is the individual or organization that you add to your policy. This third-party is referred to as the additional insured and is protected under the policy by an endorsement added to the original contract. For instance, if you’re adding XYZ Building to your insurance policy because you’re contracting for them, XYZ Building is the additional insured on your policy.
On top of these differences, the biggest difference between a named insured and an additional insured is the coverage received under the policy. The named insured receives any and all coverage included in an insurance policy, whereas an additional insured will likely have more limited coverage.
Along these lines, it’s also worth distinguishing an additional named insured from a named insured and an additional insured. With the similar terminology, this may seem confusing, however, an additional named insured is simply someone other than the named insured who is included in the original policy.
Typically, this individual or organization is named further down in the original insurance policy contract and unlike a traditional additional insured, they receive full coverage under the policy. You might include a partner or co-owner on your business insurance policy as a named additional insured.
When Do You Need an Additional Insured Endorsement?
At this point, we’ve already reviewed a few examples where an additional insured endorsement may be useful. To recap, it’s typical to see additional insureds added to policies when two businesses are working together (often one smaller and one larger) in some form of contract.
In fact, some businesses will require that you add them as an additional insured to your insurance policy as a term within your contract for work—if you’re performing contract work for a government agency, for example, they’ll normally make this requirement within your contract. Overall, there are two overarching scenarios in which your business may need an additional insured endorsement:
- Your business may request to be added as an additional insured on the policy of any contractor or third party you work with.
- A client may ask your business to add them as an additional insured on your policy.
This being said, depending on the situation, it may be beneficial for you and the third party you’re working with to add each other as an additional insured on your policies.
Although contracting is the most common situation in which you’ll find a need for an additional insured endorsement, there are certainly other scenarios as well. As we mentioned above, additional insureds are often added to commercial auto insurance when employees are driving company vehicles. Similarly, a manufacturer might add all of their product salespeople as additional insureds on their product liability insurance policy.
Ultimately, if you think you could be held liable for a third party’s actions within your business, you’ll want to be added as an additional insured on their policy. Conversely, if you think you, as a third party, could be held liable for your actions as related to their business, you may want to add them as an additional insured on your policy.
How to Add an Additional Insured to an Insurance Policy
Now that you know when you might need an additional insured endorsement, it’s important to know how to go about getting one. If you need to add a third party as an additional insured on your existing policy, you’ll need to contact your insurance company and work with them directly.
You’ll provide the insurance agent with the information they need about the additional insured that you’re adding to your policy, and they’ll be able to help you draft the endorsement to amend your policy. They should also be able to discuss coverage limits and answer any questions you may have with regard to this policy change.
Once you’ve completed the process, you’ll want to be sure that you review the actual endorsement thoroughly, especially if you’re getting it to fulfill a contractual requirement with another business. After you’ve secured the additional insured endorsement, the third party you’re working with may request a certificate of insurance as proof that the process is complete. Once again, you should be able to work with your business insurance company to get this certificate.
On the other hand, if you’ve requested that a business add you to their liability policy, they’ll go through this process with their insurance company. When they’ve completed the endorsement on their end, you’ll want to review a copy to ensure that it meets the requirements you’ve agreed upon—you might even ask your own insurance company or business attorney to review it for you as well.
This is another example of what a standard additional insured endorsement form might look like. Image source: Insurance Services Office
Additional Insured Costs
With everything we’ve reviewed thus far, you might still be wondering about one important consideration: cost. How much does it cost to add an additional insured endorsement to your policy?
As with most insurance-related costs, the answer is it will vary based on your provider. Many providers will charge a fee for each additional insured you want to add to your policy. According to Noyes Hall & Allen Insurance, these fees often start at $25. In certain cases, however, you might see that an insurance company will add a blanket additional insured endorsement for a one-time flat fee.
On the other hand, you may find that some insurance carriers, like Next Insurance, for example, don’t charge anything to add an additional insured to your policy. In fact, Next allows you to add as many additional insureds as you need for free—and you can do so online, any time.
However, even if you do have to pay a fee to add an additional insured, you’ll find that these fees are much lower in comparison to the cost of your premium.
The Bottom Line
At the end of the day, there’s no doubt that understanding additional insureds and how these endorsements work is one of the more complex aspects of insurance that you’ll encounter as a small business owner. This being said, it’s first and foremost important to remember that being added as an additional insured shouldn’t substitute a primary insurance policy. You should always have your own liability policy to protect your business.
However, if you are going to be working with contractors or other businesses in a way that could put you at risk, it is worthwhile to know when to ask to be added as an additional insured on someone’s policy.
The reverse is also true—if you’re a contracting business, you may be asked to add an additional insured on your policy—so you’ll want to understand how this process works and when it’s appropriate in order to fulfill any contractual requirements.
Ultimately, when it comes to additional insured endorsements, there’s no better resource than a professional—therefore, you shouldn’t hesitate to reach out to your insurance company (or even your business attorney) if you have questions about an endorsement, how it works, or whether it’s right for your business.