Loss Payable Clause

What Does Loss Payable Clause Mean?

A loss payable clause is a provision in an insurance contract that authorizes a claim payment to a third party, rather than the insured person, in the event the insured risk occurs.

The loss payable clause is also referred to as a loss payee clause.

Insuranceopedia Explains Loss Payable Clause

A loss payable clause is commonly included in personal and commercial auto policies, maritime insurance, and commercial property policies. It is typically found in insurance policies where the insured property is mortgaged or subject to another security interest. This clause serves as protection for lenders who have leased property or extended credit to the insured.

For a loss payable clause to be valid, the third party receiving the payment must have an insurable interest in the property. This third party is known as the loss payee.

Under a loss payable clause, the loss payee may not receive payment from the insurer if the claim is denied. If payment is made to the loss payee, the insurer assumes the relevant rights of the loss payee.