Whether you need an insurance endorsement depends upon your unique situation. While making changes to your policy isn’t typically required, you might decide it’s necessary for you.
Adding coverage can provide valuable peace of mind that your home, car or other expensive asset is protected if it’s lost, stolen or damaged. Beyond peace of mind, it could also protect you financially if the unexpected happens.
There are many different reasons you might decide you need an insurance endorsement:
Address or name change: If you’re moving but you want to keep the same insurance policy, your insurer might let you use an insurance endorsement to change your address. The same goes for changing your name if you decide to do so when you get married.
New personal property: Inherited some expensive jewelry? Built out your valuable shoe collection? Recently bought some fancy artwork? If so, it’s probably a good idea to add a scheduled personal property rider to your homeowners insurance policy. This will help ensure your new, fancy item is covered in the event of loss or damage.
Policy changes: If you want to increase, decrease or remove a certain coverage type from your policy, you can do so with an insurance endorsement. For instance, if you decide to pick up a side hustle driving for a rideshare service, you might want to add rideshare insurance to your auto policy. Or you might decide you want to add a water and sewer backup rider to your homeowners policy for added protection.
Relationship changes: Insurance endorsements are sometimes the result of life changes. Maybe you move in with a partner or spouse and decide to add them to your homeowners policy, or you might get divorced and need to remove your ex-spouse from your life insurance policy.
Added protection: You might also decide to add more coverage to your car or homeowners insurance policy. For instance, you could up your liability coverage to ensure you’re protected financially if someone gets injured at your home or in a car accident where you’re found at fault.
Here are four common insurance endorsements that small business owners use to customize their policies:
Additional insured endorsement adds someone other than you to your insurance policy – most often general liability insurance. It extends your insurance to a third party, such as a subcontractor doing work for you. This would protect that entity against third-party lawsuits or commercial property damage.
Extended reporting period endorsement modifies a claims-made professional liability [errors and omissions insurance] policy so you can report claims even after the expiration date of your insurance policy.
Prior acts coverage endorsement modifies a claims-made liability policy to protect you against losses that occurred before you bought your current policy.
Equipment breakdown endorsement modifies your commercial property insurance policy so that it can generate funds to repair or replace machinery or equipment that has suffered a sudden and accidental malfunction, such as a short circuit, loss of air pressure, or power surges.
Accounts receivable endorsement can be added to your commercial property coverage to protect your small business from financial losses when you can’t collect money from clients or customers, or when your accounts receivable records have been damaged or destroyed in a covered loss.
Electronic data processing [EDP] endorsement is normally added to a business owner's policy [BOP] and helps cover your electronic data processing equipment, such as computers and backup systems, against data loss during a power surge, fire, natural disaster, or similar incident.
Electronic data liability endorsement expands your property damage liability coverage to include a loss of data caused by accidental damage to a customer’s computer, hard drive, or other data storage equipment.
While cyber liability insurance usually covers data lost from a targeted software attack, electronic data liability insures a data loss when there’s accidental physical damage to a network or storage device.
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.
Example
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.
What is the difference between an endorsement and a rider?
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.
How does Square One use endorsements?
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.
The important points
- Endorsements are additions to an insurance policy that override whatever the original policy document says.
- Insurers can add mandatory endorsements to policies that the insured must accept before buying the policy.
- Insureds often request endorsements to enhance their coverage for speciality property, or to add coverage that isn’t part of their insurance company’s standard policy.
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About the expert: Stefan Tirschler
Stefan is responsible for underwriting leadership, market expansion, and product research and development for Square One's operations. Stefan has earned his Fellow Chartered Insurance Professional designation, and maintains a level 2 general insurance license in British Columbia, Alberta, Saskatchewan, Manitoba and Ontario. Stefan is also an Education Committee member and CIP/GIE instructor for the Insurance Institute of Canada.