If you’re getting insurance, you might want to know whether adding a subcontractor to your policy would make them an Additional Interest or an Additional Insured. Adding an Additional Interest or an Additional Insured to your insurance policy can help make sure you’re prepared for a variety of risks that could affect your business — but there are important differences between the two additions.

For one thing, “Additional Insured” is a concept that applies to liability insurance, while “Additional Interest” pertains to commercial property insurance. In this short guide, we’ll give you the scoop on what else you need to know to have the proper coverage.

What is an Additional Insured?

An Additional Insured is another person or business entity that is added to a liability policy to extend coverage for liability caused by the acts or omissions of the Named Insured (the entity with whom the insurance contract is made) or those acting on behalf of the Named Insured.

Depending on the specifics of your insurance, you may be able to add Additional Insureds to general liability insurance or professional liability insurance.

Why would you add someone else to your policy?

  • A contract may require you to add another party, such as your landlord, contractor, or business partner, to your insurance policy as an Additional Insured.
  • If you’re doing work for a government agency, you may be legally required to add that agency to your policy before beginning work.

When you add an Additional Insured, they’ll be covered by the terms of your policy. An Additional Insured is afforded coverage for liability that arises out of the Named Insured’s action. Note that employees cannot be Additional Insureds because they are already covered under the Named Insured’s policy.

What is an Additional Interest?

An Additional Interest is someone who has a financial interest in a property or item that is insured but has no actual ownership of it. A party listed as an Additional Interest typically has a stake in making sure the insurance coverage continues. An Additional Interest could be a bank or some other lienholder that loaned funds for a commercial property or vehicle. An Additional Interest will be kept up to date with any changes to the policy.1

However, unlike a Named Insured or Additional Insured, an Additional Interest is not covered by the polity for any liabilities arising out of your business.
An Additional Insured may be added to:

If your business takes out a loan to purchase a warehouse, for example, the bank that issues the loan may want to be listed as an Additional Insured on your commercial property insurance, which is likely required according to the terms of the loan. Because the bank has a financial stake in the property, it will want to ensure that your coverage continues.

Liability insurance and Additional Insureds

If you have general liability insurance, it can provide coverage for a clients’ or other third party’s claims of bodily injury, personal injury, property damage, and advertising injury.

To share this coverage, you’ll always need to add (or be added as) an Additional Insured, not an Additional Interest.

Let’s take a closer look at how this works:

If you’re a landscaper who hired a contractor to remodel a client’s porch, they could accidentally leave out their tools, which the client trips over and becomes injured. If you’ve asked to be added to their general liability insurance policy, you won’t have to rely on your own business insurance alone to cover the legal defense and damages in the event you are named in a lawsuit against the remodeler.

When you contractually require subcontractors to add you to their insurance policies, you lower the chance that you’ll be 100% responsible for the payments related to a claim that stems from the work they’re doing for you.

This is one good reason to ask your subcontractors to carry insurance: it lowers the risk that you’ll end up completely financially responsible for an error they make.

When you’re listed as an Additional Insured, their policy might help to cover the bulk of the damages that result from litigation as well as arrange your legal defense and claims settlement.

Commercial property and Additional Interests

Commercial property insurance can provide coverage for loss of use and damage to your place of business, as well as the equipment inside it.

Adding an Additional Interest to your policy helps guarantee that parties with a financial stake in the commercial property have adequate coverage.

Who would be exposed in the event of a fire, storm, or other damage to your place of business?

  • Your valuable business property may be damaged
  • If you are leasing any equipment, the lessor would also be exposed

Building owners sometimes contractually require their commercial lessees to add them as Additional Interests on a property policy that covers a building. This can be less expensive than taking out their own insurance, or they can share risk with tenants when they are listed on two policies. Because the tenant does not have an ownership interest in the building, only a potential contractual obligation, you should talk to your insurance broker to discuss if the insurer will cover this situation.2

If you are leasing expensive equipment, the lessor may require that you list them on your insurance policy.

When to add an Additional Interest vs. an Additional Insured

When it comes to an Additional Interest vs. an Additional Insured, the technical difference is that Additional Insureds will be provided a defense and coverage under a liability policy, while Additional Interests will be kept updated of changes and reimbursed for their financial loss in the event of a covered loss under a property policy.

With Thimble’s general liability insurance and professional liability insurance, it’s easy to add as many Additional Insureds as you need, and for no additional charge. When you update your policy via the Thimble mobile app or online, you can instantly see the Additional Insureds listed on your policy.

However, keep in mind that some insurers use these terms differently — and others may use them interchangeably (because, you know, insurance).

Are you considering adding someone else to your insurance policy? We hope this handy guide makes it easy to explain the pros and cons to folks who need to know.

Just remember:

  • Additional Insureds can be added to general liability insurance policies.
  • Additional Interests can be added to commercial property insurance policies.
  • When they’re named in a policy, Additional Insureds are covered by that policy if they are brought into a claim because of the actions of the Named Insured.
  • Adding a person or company as an Additional Interest ensures that the financial interests of that entity are protected in the event of a covered loss.

The big takeaway: When everyone in a transaction is prepared for business risks, it makes it that much easier to trust each other and get the job done.

Sources:

  1. Investopedia. Additional Insured. 
  2. IRMI. Insurable Interests and Interests Insured in Property Insurance. 

Our editorial content is intended for informational purposes only and is not written by a licensed insurance agent. Terms and conditions for rate and coverage may vary by class of business and state.