When most of us hear the word endorsement, the most common usage in the world at large has to do with athletes getting vast sums of money from Gatorade or Coke to endorse their product. In the insurance world, an endorsement is a very different thing.
There are two basic types of endorsements: The first adds or extends coverage that is not supplied under the basic policy wording. The second allows changes to be made to an existing policy during the term of the policy.
Virtually all insurance policies for the consumer are based on standardized wordings and coverages. A commonly used endorsement provides for extra coverage when the standard limits are too low. For example, most homeowner’s policies have standard limits on the amount they will pay out on computer equipment, jewellery, camera equipment and art. For an art collector, photographer or just a family with a laptop per kid and a bunch of peripherals, these limits are often far below the actual values of their holdings.
A special endorsement can be written to provide the extra coverage that the standard policy lacks. These endorsements will likely require an additional premium, and sometimes proof of the value of the item. For a valuable piece of jewellery or art, a photograph and a copy of the receipt or appraisal may be required. (In any event, it is a good idea to have both on hand as they can greatly streamline the claims process in the event of a loss).
Likewise, endorsements may be added to extend the perils coverage beyond the standard form. Perils are the bad things that can happen to cause damage to your stuff. Some perils are not covered under the basic policy wordings; for the average person, the risk is so remote that the additional premium doesn’t justify the coverage. But in some cases, these perils are either more likely to happen, or the cost of the damage caused by them is so great, that the extra premium is justified. For example, earthquake insurance is probably a waste of premium for people living hundreds of miles from a hot zone, but more valuable to a person living in the periphery of a fault. Or a person who has millions of dollars worth of fragile glass sculptures on display.
The second type of endorsement makes changes to an existing policy during the policy term. An insurance policy is a contract, and as such, is regulated by contract law. When an insurance policy is written to cover a specific term, and changes need to be made mid-term, the law does not allow the agent just to pencil the changes into the existing contract. An endorsement is an addition to the contract that is signed by both parties and clearly states the changes to be made. This ensures that the new contract is legally binding on both parties, and clearly laid out and defined should a dispute arise.
Changes that require endorsements may be the addition of new drivers to a car insurance policy; a change of use endorsement if the vehicle is now being used for business or work purposes; the addition or subtraction of perils, coverage or the assets covered. Depending on the type of change, an endorsement that changes coverages may require an additional premium, result in a refund, or have no change to the premium at all.
The importance of a change type of endorsment cannot be understated. Throughout the course of a year long policy, things change in our lives. It is important that our insurance coverage keeps up with the changes so should disaster befall us, there are no gaps in coverage that compounds our misery.