What is the purpose of a loss payable clause?

The purpose of a loss payable clause is to ensure that a creditor receives payments from losses covered by an insurance policy. This clause is particularly important in situations where the insured property may be collateral for a loan or financing agreement. The presence of a loss payable clause provides the lender with assurance that in the event of a loss, such as damage or destruction of the property, they will receive compensation directly from the insurance company.

Such clauses typically stipulate that insurance proceeds should be paid to the creditor first in the event of a loss, thereby protecting the lender's financial interest. This arrangement helps maintain the security of the loan and mitigates the risk for the lender, ensuring that they can recoup their investment.

Understanding the role of a loss payable clause is crucial for adjusters, as it affects how claims are handled, particularly when multiple parties may have an interest in the proceeds from an insurance claim.