We use cookies to improve security, personalize the user experience,
enhance our marketing activities (including cooperating with our marketing partners) and for other
business use.
Click "here" to read our Cookie Policy.
By clicking "Accept" you agree to the use of cookies. Read less
What is a Loss-Payable Clause? A Comprehensive Legal Overview
Definition & Meaning
A loss-payable clause is a provision in an insurance policy that allows the insurer to pay insurance proceeds to a third party who holds a security interest in the insured property, rather than the named insured. This clause ensures that the interests of the third party, such as a lender or mortgagee, are protected in the event of a loss. The clause typically designates the third party as a beneficiary of the insurance proceeds or assigns them a claim against the insurer, but it does not make them an additional insured under the policy.
Table of content
Legal Use & context
The loss-payable clause is commonly used in the context of property insurance, particularly in real estate transactions. It is relevant in various legal areas, including:
Insurance law
Real estate law
Contract law
This clause is essential for lenders who want to ensure that they can recover their investment in the property if a loss occurs. Users can manage related documents and forms through platforms like US Legal Forms, which provide templates drafted by legal professionals.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A homeowner takes out a mortgage to purchase a house. The mortgage lender requires the homeowner to include a loss-payable clause in their homeowner's insurance policy. If the house is damaged in a fire, the insurance proceeds will be paid directly to the lender to cover the outstanding mortgage balance.
Example 2: A business owner has a commercial property insurance policy with a loss-payable clause that names their bank as the beneficiary. If the property suffers significant damage, the insurance company will pay the bank directly, ensuring that the bank's financial interest is protected. (hypothetical example)
State-by-state differences
Examples of state differences (not exhaustive):
State
Notes
California
Loss-payable clauses are commonly used in mortgage agreements.
Texas
Specific regulations may apply to the wording of loss-payable clauses.
New York
State law mandates disclosure of loss-payable clauses in certain contracts.
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Difference
Additional insured
A person or entity added to an insurance policy to receive coverage.
An additional insured has coverage under the policy; a loss-payable clause does not grant this status.
Mortgage clause
A provision in an insurance policy that protects the mortgage lender's interest.
While similar, a mortgage clause may provide broader protections compared to a loss-payable clause.
Common misunderstandings
What to do if this term applies to you
If you are involved in a transaction where a loss-payable clause is relevant, consider the following steps:
Review your insurance policy to ensure it includes the necessary clauses.
Consult with a legal professional if you have questions about your rights or obligations.
Explore US Legal Forms for templates related to loss-payable clauses and other insurance documentation.
For complex situations, seeking professional legal help is advisable.
Find the legal form that fits your case
Browse our library of 85,000+ state-specific legal templates.