Loss Payee

Loss Payee

The loss payee is the party to whom the claim from a loss is to be paid. For example, the loss payee section of an auto insurance policy creates more than a direct link between your insurance company and your lender. A loss payee can mean several different things; in the insurance industry, the insured, or the party entitled to payment is the loss payee. The lender will usually require verification of insurance coverage, and the loss payee should be added as soon as you buy insurance for the covered vehicle. For example, the loss payee section is a section on an auto insurance policy that lists your lender’s name and address on the given collateral.

When you use collateral to secure your loan, a loss payee will be put onto your insurance policy.

What Is a Loss Payee?

The loss payee is the party to whom the claim from a loss is to be paid. A loss payee can mean several different things; in the insurance industry, the insured, or the party entitled to payment is the loss payee. The insured can expect reimbursement from the insurance carrier in the event of a loss. One example would be if a borrower defaulted on their loan and didn't pay it.

When you use collateral to secure your loan, a loss payee will be put onto your insurance policy.
The loss payee acts as a guard for the lender to protect it against unpaid loans.
When there is a total loss, the lender is paid before anyone else.

How Loss Payee Works

Loss payee can be different from "first loss payee," which is the party that must be paid first when a debtor defaults on a loan. 'Loss payee' is simply a generic phrase signifying the rightful recipient of any kind of reimbursement and is most often used in the auto insurance industry.

When financing a vehicle purchase, a buyer must agree to carry insurance on the secured property, otherwise forced placed insurance becomes a possibility. The financial institution making the loan typically insists that they are indicated as the loss payee on the insurance policy to protect themselves against loss.

For example, the loss payee section is a section on an auto insurance policy that lists your lender’s name and address on the given collateral. It is important to give the correct address for your lender, as some insurance companies have multiple addresses.

The term loss payee is most often used in the auto insurance industry but is also used by other insurance sectors.

The lender will usually require verification of insurance coverage, and the loss payee should be added as soon as you buy insurance for the covered vehicle. This verification of insurance cannot be satisfied simply by an insurance id card; it needs to be a declarations page. The declarations page will have multiple pieces of crucial information listed for your lender:

Explaining Loss Payee Status

When listed as a loss payee, the lender will receive notification of your insurance policy’s status on a regular basis. The notifications will inform the lender of all activities on your insurance policy. For example, the loss payee section of an auto insurance policy creates more than a direct link between your insurance company and your lender.

Since you are not the sole owner of the collateral, claim checks will be payable to both you and the lender...or directly to a repair shop. In a total loss, the lender will be paid first.

For the lender, being listed as a loss payee ensures the lender will be compensated for their collateral, regardless of potential losses.

The loss payee is essentially a safety net for the lender to reduce unpaid loans. If you do not list your lender as loss payee, it is probable the lender will put forced placed insurance on your collateral.

Related terms:

Actual Total Loss

Actual total loss is a loss that occurs when an insured property is totally destroyed, lost or damaged to such an extent that it cannot be recovered. read more

Auto Insurance

Auto insurance is purchased by vehicle owners to mitigate costs associated with getting into an auto accident. Discover more about it here. read more

Common Policy Declarations

Common policy declarations contain the basic information that defines an insurance policy, such as the amount of coverage, premium, and policy terms. read more

Debtor

A debtor is a company or individual who owes money to a lender and is also often referred to as a borrower. Read about laws that protect debtors. read more

Home Lien

A home lien is a legal claim placed on a home.  read more

Loss Payable Clause

A loss payable clause is an endorsement where an insurer pays a third party for a loss in lieu of the named insured or beneficiary. read more

Reimbursement

Reimbursement is compensation paid by an organization for out-of-pocket expenses incurred or overpayment made by an employee or another party. read more

Standard Auto Insurance

Standard auto insurance is basic auto insurance, generally offered to drivers with clean driving records who fall into an average risk profile. read more

Subrogation

Subrogation is the right of an insurer to pursue the party that caused the loss to the insured in an attempt to recover funds paid in the claim. read more

Title Insurance

Title insurance protects lenders and homebuyers from financial loss due to defects in a property title, such as outstanding lawsuits and liens. read more