Reviewed by Stefan Tirschler
en·dorse·ment | ɪnˈdɔrsmənt
Definition: An amendment to a contract of insurance that overrides the terms of the contract.
Paul asked his insurance provider if they could add an endorsement to his policy to insure his collection of antique books.
Insurance companies don’t write insurance contracts from scratch for each of their customers. Instead, insurers use standard policy wordings, and they only need to adjust details from customer to customer.
Details like limits of coverage are certainly different in each policy, but the bulk of an insurance contract is “off the shelf.”
Here’s why endorsements exist.
When an insured has a need that isn’t covered by standard policy wordings, insurance companies can still accommodate them. The insurance company adds an endorsement to the policy that overrides the standard policy wordings.
Vanessa just moved into a new home and bought a new homeowner’s insurance policy to go with it. Her insurer’s standard policy includes a $500 coverage limit for jewellery. Vanessa, however, has quite an extensive collection of jewellery. She’s had it appraised at $15,000.
Vanessa asks her insurer if they can increase the coverage limit to accommodate her jewellery collection. The insurance company agrees to do so and adds an endorsement to her policy raising the limit of coverage for jewellery to $15,000. Vanessa pays a higher premium in return.
An endorsement overrides anything it needs to in the standard policy wordings, to provide the desired level of coverage.
Insurance companies use endorsements for much more than just adjusting coverage limits, however. Here are a few other common uses of endorsements:
Adding or excluding covered perils. Many home insurers exclude earthquake coverage in their standard policies. They may allow insureds to add earthquake coverage to their policy with an endorsement. On the flip side, an insurer may include flood coverage by default, but use an endorsement to remove that coverage from a home sitting on a floodplain.
Enforcing different deductibles. An insurer can add an endorsement that changes the deductible for certain losses. For example, a policy with a standard deductible of $500 may have an endorsement that enforces a $10,000 deductible on water damage claims caused by faulty plumbing. An insurer may use such an endorsement if they know a home’s plumbing system is old and likely to fail, but they’re still willing to insure the home. They’ll usually ask the insured to upgrade their plumbing system before they can remove the endorsement.
Changing policy details. If the information within a policy document needs to be changed before the annual renewal, the insurer can make the change using an endorsement. For example, if the occupancy of the home changes.
Insuring a home-based business. Home insurers can insure property used for certain home-based businesses that meet their guidelines. But first, insureds need to request an endorsement that includes their business property.
Usually, the insured requests that their insurance company add an endorsement to their policy. Sometimes, though, the insurer adds endorsements of their own, which are not optional.
As in the example above, where an insurer adds a $10,000 deductible for claims arising from burst pipes, sometimes insurers enforce higher deductibles or lower limits than what their standard policy offers.
These types of endorsements aren’t optional; if the insured wants the policy, they must accept the terms. Mandatory endorsements of this nature aren’t common, however.
Endorsements are also known as riders. Rider and endorsement are the same thing; they both refer to changes made to an insurance contract. Floater is another term you’ll sometimes hear, which also means roughly the same thing. You’ll often hear these terms used interchangeably.
In general, endorsements are used to expand or restrict coverage for certain types of loss. For example, a sewer backup endorsement adds coverage for losses caused by sewer backups to a policy that otherwise wouldn’t cover them.
Meanwhile, riders and floaters are used to add certain types of property to the policy. For example, a jewellery rider adds coverage for individual pieces of jewellery that might not have enough coverage under the standard policy. Or, a watercraft floater would add coverage for individual boats.
Square One handles many common endorsements differently from other home insurance providers, so we’ll take a minute to explain here:
Homeowners often ask their insurer to add endorsements that cover their specialty property, like jewellery or watercraft. Most standard policies have just small limits for these types of items, so anyone who needs more coverage must ask for an endorsement.
Square One makes it easy for our customers to personalize their policies. Instead of issuing endorsements for speciality property, we let insureds choose which types of speciality property they want to insure and for how much. Those choices happen within the application, so they’re reflected in the policy wordings.
We also include earthquake and overland flood coverage in most of our policies by default, so there’s no need for most insureds to add these coverages via endorsement.
In Square One’s case, we use what’s called limited depreciation. If an insured chooses not to replace their lost or damaged stuff, we can often provide them with a limited depreciation settlement. That means we’ll deduct no more than 50% of an item’s replacement cost for depreciation. That often means a greater payout than other policies that always apply full depreciation.
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