Putting Trust on the Insurance?

Question

Hi Everyone,

So my properties are in a trust. However, my insurance for these properties was under my name only. I just discovered recently that that is a HUGE mistake, being that if anything were to happen, my insurance won't cover it since the property deed is under the trust and not myself. ( I corrected for this huge mistake).

I've spoken to my two insurance companies and one of them has put the Trust as the 'Name Insured' and the other has put another property as 'Additional Insured'.

Which is better and does it matter?

Thanks!

Chris Mason · Answer

Why this matters, for those curious:

http://schmidtandlong.com/insurance-coverage-of-trust-assets-after-grantors-death/

https://community.icle.org/blogs/jeanne-e-murphy/2018/10/23/ensuring-coverage-for-assets-in-trust-after-thomps

http://publicdocs.courts.mi.gov/opinions/final/coa/20180410_c337368_35_337368.opn.pdf

Dan Trinh · Answer

Hi Matthew, I spoke with my insurance and had them put the Trust as the 'Named Insured' rather than 'additional insured'. Sounds to me like this is the most common and safest practice.

Jer Yeung · Answer

It matters, but likely not to anything that would make a difference.  Not every company will name a trust as the Named Insured.  Oftentimes, it will be Dan Trinh, trustee of the Dan Trinh Trust... ... ...

The Named Insured has the rights to the policy (specifically the First Named Insured), including making changes to the policy, etc.  Additional Insureds (or Additional Interests, as there is a difference), are entities that have some sort of coverage with regards to the policy.  In a situation where you manage the trust and are the trustee (an assumption I'm making), either way works.  We set up policies both ways, more with the individual as the Named Insured for personal lines policies, and more with the Trust as the Named Insured for commercial (5+units) policies.

hope that helps!

Jer Yeung · Answer

oh - as for the coverage, there has to be an interest in the property insured in order for insurance to pay a claim on a property.  Either of the options will get that job done.  In many cases, if it's a matter of Dan Trinh vs Dan Trinh, trustee of the Dan Trinh Trust, insurance companies will overlook it and pay a claim to the trust (legal owner of the property), as that was the intent of the policy purchased.  I have run into a situation where an insurance company has been a real stickler on something like this though... best to get it straightened out the way you did.

Dan Trinh · Answer

Thanks Chris,

This is actually what i stumbled upon and read which got me thinking about if my insurance was named correctly . hahah.

Dan Trinh · Answer

Thanks Jason, that definitely alleviates my concerns. Glad to hear it from another insurance broker.

John Mocker · Answer

Dan,

Part of the reason many put properties into a trust is to distance their personal assets not in the trust from a Liability situation.  I would ask your attorney if the policy with you as the named insured would compromise that separation.

Matthew McNeil · Answer

I faced the same issue a year ago and my insurance agent walked me through it to make sure the insurance company got everything corrected. What you wrote above is the best option; Trust as the 'Name Insured' and the other has put another property as 'Additional Insured'.  That's how my policies are written.

By the way - did you Quitclaim the property to the Trust?  If so, did you check with the Title company to make sure the insurance carries over?

Jason Bott · Answer

Dan, as an insurance broker, I just wanted to agree and second everything Jer has stated above.

With the way your policy is written above, I do not see a way the insurance company could deny a claim if the property's title states "Dan Trinh Family Trust" as the owner.

Jer Yeung · Answer

I imagine that would be ok as-is, but that may be something you want to shoot a quick email to your trust attorney about.

There has to be an insurable interest in the property, meaning the entity buying the coverage needs to have some sort of relation to the property somehow.  An easy way to think of this is that I can't randomly buy insurance on your property in hopes that something happens to it so that I get an insurance payout.  I have to either be an owner, or have some sort of lease agreement (think triple net lease for a commercial lease) in order to have an insurable interest.  Without an insurable interest, the insurance company in theory could deny the claim.

Putting Trust on the Insurance?

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