Insurance endorsements can be added to a policy at the time of purchase, mid-term, or at the time of renewal. They become a part of the legal insurance contract, remaining valid until the expiration of the policy, unless the endorsement specifies a term that is different from the policy expiration date. Insurance endorsements are also referred to as “riders.”

What is an insurance endorsement?

An insurance endorsement is an amendment to a property or casualty insurance policy. An endorsement is a legally binding document attached to an insurance contract that changes the policy in some way. Endorsements can add coverage, subtract coverage, modify limits, clarify language, or just be a small administrative change, such as a correction to a name.

Why do you need an insurance endorsement?

Insurance companies have standard property and casualty insurance policies for their customers. What happens when the standard policies don’t address some specific risks that a business might be exposed to? No matter how comprehensive your insurance policy, it will not cover every single type of risk or scenario that might affect your business. There will always be gaps in coverage that need to be addressed.

Insurance endorsements can be added to insurance policies to help meet the unique needs of businesses. Endorsements allow insurers to customize coverage for policyholders. The majority of insurance endorsements will add some type of additional coverage for the insured, though some endorsements will subtract coverage or make other modifications to the policy. Typically, endorsements give business owners more complete coverage, while at the same time, allowing them to save money in comparison to purchasing an additional policy.

Example:

• A car dealership’s commercial property insurance policy has no coverage for the exterior fencing surrounding its property. However, the dealership’s owners recently invested in updating the exterior fencing and would like to include this property in their commercial property policy. An insurance endorsement can change the original commercial property insurance policy to include coverage for the fence.

What are the costs of insurance endorsements?

An insurance endorsement that adds coverage will typically increase premiums, while endorsements that restrict or limit coverage will decrease premiums. Endorsements that add coverage generally don’t cost much because they are very specific provisions added to a policy, and there will be little underwriting necessary. Purchasing another policy that might cast a wide coverage net would cost the policyholder more, while potentially providing coverage that is unnecessary.

However, it’s important for business owners to closely review the details of their insurance policies to make sure that the endorsements are not providing coverage for risks that will never occur or providing duplicate coverage for risks that are already included in the standard policy.

What are the types of insurance endorsements?

There are a variety of different types of insurance endorsements that can modify and amend a wide range of policies. Below are a few common endorsement types:

Adding Coverage – Business owners usually purchase insurance endorsements to gain additional coverage that’s not included in a standard insurance contract.

• Example: Certain types of property, like exterior fencing or retaining walls, are commonly excluded in a standard commercial property insurance policy, and a business owner may opt to add an endorsement to cover this additional property.

Naming an Additional Insured – An Additional Insured Endorsement will provide coverage for the additional people named on the endorsement, in addition to the primary insured parties.

• Example: A general contracting company hires subcontractors to complete some of the work the company has been contracted to do. Giving the subcontractors Additional Insured status on the general liability insurance policy will provide coverage in case the subcontractors cause an accident that damages the client’s property.

Removing Coverage – Insurance endorsements can also limit or remove coverage from an insurance contract.

• Example: For contractors, a Designated Workplace Exclusion Endorsement removes coverage for employees working on a specific project site. This endorsement is usually procured when the project has already been covered by a wrap-up insurance plan, which is a comprehensive plan for large construction projects that provides blanket coverage for project owners, contractors, and subcontractors. Using a Designated Workplace Exclusion Endorsement, contracting firms can exclude the project site that is already covered to avoid paying for duplicate coverage.

Changing Deductibles – Insurance endorsements can increase or decrease a deductible.

• Example: For a small business that develops and produces software, an endorsement increases the deductible from $1,000 to $5,000, which saves the owner some money on premiums.

Changing the Policy Term – Change the span of time the policy will be valid.

• Example: A manufacturer’s original commercial property insurance policy covers property losses up until March 2020, but the company purchases an endorsement to change the policy term to June 2020.

Changing Limits – Changes the policy limits and sub-limits of insurance contracts.

• Example: A retail store purchases an endorsement for a commercial general liability insurance policy that increases the limits of liability, including general aggregate limits, personal and advertising injury limit, each occurrence limit, damage to properties rented limit, and medical expense limit.

Editorial Changes – Changes in the language of the insurance policy.

• Example: The original policy issued by an insurer has a few grammatical errors that create some confusion about the terms of the policy. The insurer adds an endorsement to edit the language of the policy for clarity.

Administrative Changes – Changes to details in the policy such as a mailing address or name.

• Example: Jane Smith, the insured, changes her legal name to Jane Sutherland after getting married. She uses an insurance endorsement to change the name on her property insurance policy from her maiden name to her current name.

What are standard vs. non-standard endorsements?

Standard endorsements are pre-drafted documents usually published by insurance advisory organizations. These “templates” are used across the insurance industry by various insurers because they are:

• Easily available – insurers usually just need to purchase a subscription
• Previously interpreted by courts

Insurers often prefer standard endorsements because they are more predictable in the event of litigation since they have been interpreted by courts in the past, making them less risky than non-standard endorsements. Insurance advisory organizations that issue standard endorsements include:

• Insurance Services Office, Inc. (ISO)
• American Association of Insurance Services (AAIS)
• Surety Association of America (SAA)
• National Council on Compensation Insurance, Inc. (NCCI)

Non-standard endorsements are drafted by the insurance company. Non-standard endorsements are often issued by insurance companies when no standard endorsement will provide the customized coverage required. Many are simply variations of standard templates, using the template and changing a few words. A non-standard endorsement created for a single use on a single policy is called a manuscript endorsement.

What are mandatory vs. voluntary endorsements?

The vast majority of insurance endorsements are voluntary endorsements added by the insured or the insurer. A small business might request an endorsement that provides additional coverage for workers’ compensation claims to ensure that the company will be adequately covered if an employee gets injured. An insurance company might draft an endorsement for a commercial property insurance policy that specifies an exclusion for a specific peril (e.g. hailstorms) to avoid paying claims related to that particular risk.

Mandatory endorsements are rare endorsements that are required either by state law or ISO rules. Many state insurance departments use an endorsement to prevent insurance companies from canceling a policy. For example, if a massive wildfire burns through a neighborhood in Northern California, an insurance company might view wildfires as a significant risk in the affected area and cancel property insurance policies for nearby residents going forward. However, the state insurance department may regulate cancellations by mandating an endorsement that either prevents cancellations or requires the insurance company to give three months’ notice.

Final Word

Since even the most robust standard property and casualty insurance policies don’t cover everything, insurance endorsements provide a way to alter and customize coverage. While most insurance endorsements serve to add coverage to existing policies, others actually subtract coverage (e.g. for perils the insurance company wants to avoid paying out claims for) or make other modifications to the scope and terms of the policy. Endorsements are usually created by insurance companies but can also be mandated by state law or ISO rules. They are legally binding documents attached to the original insurance contract.