Adding an Additional Insured on your auto policy simply specifies that somebody else's name will show up on any check written by the insurance company in the event that you wreck your vehicle. This part of your insurance policy is there to specify an additional entity that can also receive benefits from your policy in the event of a loss to the property being financed and insured. You will find this feature in homeowner's insurance, however, it is more commonly referred to there as a Mortgagee Clause.

The most common scenario where you will see this added to your policy will be when you are financing your car. It is one way that the lender can ensure their interest in the collateral is protected. In addition to any check being made out to the primary insured AND the lender, the insurance company will notify any Additional Insured if the policy were to lapse. This is done to provide the party with the interest in the vehicle to place their own insurance on the automobile if the person buying the car does not keep their insurance policy in force. This usually results in additional charges to the car buyer, and will usually be much more expensive than a standard auto insurance policy which the buyer could purchase from a local agent.

The Additional Insured feature may also be used to protect the interest of a parent or an individual seller who finances a vehicle purchase to a friend or relative. Let's say you have a friend who would like to buy your automobile, but cannot afford to pay the vehicle off completely, so you agree to take payments on the vehicle and decide to leave your name on the title, just in case they don't actually finish purchasing the car from you, so you can re-take possession of the vehicle without a lot of hassle. You would want to make sure that you were added as an Additional Insured on their auto insurance policy - that way if they were in an accident, you would receive any benefit paid out by the insurance company along with the primary insured. There may also potentially be liability protection to the seller or actual owner of the vehicle depending on the insurance contract and company in the event that the person named on the Title were to be named by any injured party from an accident. Parents with children heading off to college will also have themselves named as Additional Insured's on the policy to make sure that their kids insurance does not lapse while they are away, in addition to receiving the other benefits outlined above.

Disclaimer: I am not a lawyer nor am I an expert on any sort of insurance contract - Insurance contracts vary from State to State and the information provided above is not a substitute for guidance and counsel from your insurance agent, lawyer or other local professional who would be more familiar with the laws and regulations of your local.