Policyholders are often shocked to learn that the loss settlement check they receive from the insurance company is payable not only to the policyholder, but to their mortgage company as well. Homeowners insurance policies are broken down into several types of coverage – whether for the building, personal property, liability, alternative living expense, or other losses. For certain types of coverage, the insurance policy will list the mortgage company as an “additional payee” on the policy – which means that the mortgage company’s name must be listed on any loss settlement check.
The reason the mortgage company is listed as an “additional payee” on the insurance policy is that the mortgage company has a vested interest in insurance coverage payments issued for any loss to the insured property. The mortgage company presumably loaned money to the policyholder and, in order to provide a guarantee of repayment, the policyholder agreed to grant the bank a mortgage on the property as collateral for the loan.
Should the subject property be damaged or destroyed, the unrepaired property would then be worth less than before the loss and therefore, the mortgage company would not have the same amount of security for the loan as prior to the loss. In order to protect the mortgage company’s security for the loan, the mortgage company’s name will appear on all insurance loss payments related to the property given as collateral for the loan. Because the property protects the mortgage company in case of non-payment of the loan by the policyholder, the mortgage holder has a strong interest in making sure the property is either repaired or the outstanding loan is paid down to a point at which the loan is again fully secured by the value of the property.
The inclusion of the mortgage company’s name on the insurance check usually just affects coverage relating to the actual building on the property, since the home is usually given as collateral for the mortgage loan. On the other hand, claims for damage to personal property, liability, or loss of use do not relate to property subject to a mortgage and therefore settlement checks on these losses would not have to include mortgage company’s name as an additional payee.