Insurance refers to an important contract whereby a person pays an amount of money as consideration in exchange of compensation for the risk in terms of financial losses that are uncertain. It is therefore important for one to gain a basic understanding of insurance as well as the terminologies that are commonly used. “Mortgagee” and “Loss Payee” are some of the terms that are widely used in insurance and many people confuse them as they are used interchangeably. They are however not the same.

• A Loss Payee Loans Money On Real And Personal Property

A commercial property policy endorsement that gives a creditor of the insured that has loaned money in connection with the insured's personal property the same rights and duties that a mortgage clause gives a mortgagee. The standard loss payable provisions endorsement (CP 12 18) includes this as one of its three options.

Loss Payee
This term is generally used with respect to commercial, residential property and automobile insurance. The term refers to the party to whom the claim or loss payment is made to before being released directly to the Insured Name. The insured name is the insurance policy owner who is eligible to make changes, cancel the policy, make modifications or file claims. Automatically, it includes the insurance policy mortgagee.

For instance, suppose XYZ Bank offers you financing for a property that you own. Unfortunately, an accident that was not expected happens and your property gets burned by fire. You then file damages amounting to $ 80,000. Consequently, you release a claim cheque of a similar amount from the insurer. This amount will be distributed equally between XYZ Bank and you. In this case, the bank will be the loss payee and the mortgagee since it will be entitled to a similar amount of claim or loss. The claim is verified by the XYZ bank and endorses the payment for you for purpose of repair of the property. They also have an interest in the mortgage loan since they would also like to continue having control of loss payment in order to pay off the loan in case there is no repair carried out.

Mortgagee

This refers to the party who starts the process and maintains a promissory note and mortgage loan on property. Banks and mortgage lenders are some of the examples of mortgagees. They are the ones that give finance borrowers like home owners. For insurance policies, every mortgagee is considered as a loss payee since claim payments are normally paid to the listed mortgagee and the insured.

Differences

For a mortgagee, in case the policy does not mention his name either deliberately or unintentionally, he is not eligible to any coverage or right. Additionally, the mortgagee will also not be included as a loss payee for such coverage as personal belongings.

Furthermore further loss payees can be assigned on the insurance contract of the home owner apart from yourself and the mortgage lender. However, it is prohibited to ascribe more than a mortgage in a contract of insurance since there is just a single entity initiating the loan for a single contract.

Therefore, who is to be paid eventually? In a valid contract of insurance, someone will be paid only in case he is the valid loss payee. However, in case he is the mortgagee and unfortunately the house catches fire, he will not receive any payment. He will only get the property burned down.

A Loss Payee Loans Money On Real And Personal Property

In summary, what a provision of loss payee is all about is that in case something goes wrong and you incur some loss to be compensated by the insurer, it will be payable to the person who loans the money and not to the one who owns the property. A mortgagee therefore is just but a notation where the person who gave the loan of money for acquiring the object is not related to receive the money at the end and his only relation is to get the rights and property.