Any business owner knows how important it is to protect their business from everyday risks.
So it’s no surprise that a good amount of research often goes into finding the right insurance to meet the needs of your business. But what happens if circumstances at your business change once you’ve signed on the (virtual) dotted line for insurance coverage?
A common misconception is that insurance contracts are set in stone once implemented. The reality is that insurance policies can change at any time to accommodate new situations and requirements. Those changes are made through amendment documents added to the policy, known as endorsements.
Wondering what endorsements are and what they might offer for your growing business? We’ve got you covered.
What are Endorsements in Insurance?
The most straightforward way to explain insurance endorsements is that they make legally binding changes to an existing policy. Endorsements allow you to add and exclude coverage, make a correction, or implement other modifications to an initial policy.
For example, suppose you own a restaurant and install a new patio to expand your outdoor seating area. However, after completing the work, you realize your commercial property insurance policy doesn’t cover your new patio. An insurance endorsement can amend the original policy to include coverage of the patio.
You may have also heard of the term “insurance rider.” This is another term used for endorsements – just think of “rider” as a reference to an endorsement overriding an initial policy.
How do Insurance Endorsements Work?
As mentioned, insurance endorsements change an original insurance policy. Endorsements take precedence over the initial policy and invalidate any outdated information. Here’s a look at some of the common ways that some businesses use endorsements:
- Adding Coverage: Business owners may purchase an insurance endorsement to acquire additional protection not covered in their initial insurance policy.
- Removing Coverage: Endorsements can also be used to remove coverage from your policy that you don’t need, saving you money.
- Naming an Additional Insured: An additional insured endorsement will provide coverage for people named in the endorsement and the primary insured individuals. For example, an endorsement for an additional insured can be useful for general contracting companies that hire subcontractors to complete work on the company’s behalf.
- Extended Reporting Period: Also known as “tail coverage,” an extended reporting period endorsement allows you to file a claim against your policy after it has expired or been canceled. Business owners can add this type of endorsement to claims-made policies to extend the coverage for incidents that occurred while their policy was still active but were not reported until after the coverage ended.
- Accounts Receivable Endorsement: With an accounts receivable endorsement, you can protect your business from financial hardship for times when you’re unable to collect money from clients or customers or if a covered peril has destroyed your accounting records.
Regardless of the reason for an endorsement, you can add them to your policy at any time – when purchasing the coverage, during your policy period, or at renewal. Plus, once in place, endorsements are valid for the duration of your policy unless specified otherwise.
Types of Endorsements
While there are different ways that an endorsement is used to modify insurance coverage, there are also different types of endorsements. The four types insurance of endorsements are:
Standard endorsements are the most common type. These endorsements are templated by insurance advisory organizations, including the American Association of Insurance Services (AAIS) and the Insurance Services Office (ISO), for insurance providers to use. Because insurance advisory organizations template them, standard endorsements aren’t only easy to apply to a policy, but they’re also safe and secure.
Templated endorsements are convenient, but they don’t fit the needs of every business. That’s where non-standard endorsements come in. An insurance company drafts these types of endorsements, which can involve making changes to standard templates or drafting new documents.
There are occasions when an endorsement is required by law, though those instances are quite rare. For example, suppose your business is in a high-risk flood zone, and your mortgage is with a government-backed lender. In that case, you’re required to have flood insurance. There are also some endorsements made mandatory by ISO rules. Your insurance agent or broker can advise you on any mandatory endorsements for your business.
As the name suggests, voluntary endorsements are just that – voluntary. Unlike mandatory endorsements, these are optional endorsements that a policyholder or insurer adds. The vast majority of endorsements will fall into this category.
What are the Benefits of Insurance Endorsements?
Even the most comprehensive insurance policy can have gaps in coverage that could put a business at risk. Insurance endorsements are another way to help you get customized coverage to fit your business’s evolving needs. Endorsements enable insurance providers to tailor coverage to meet individual businesses’ unique requirements and specific risks.
Not to mention that depending on the endorsement put in place, it can even save you money on your insurance premiums. Plus, endorsements are more convenient and often more cost-effective than purchasing a whole new insurance policy.
How to Get an Insurance Endorsement
Thinking that an endorsement might be useful to address changes at your business or bridge gaps in coverage? The good news is that getting an insurance endorsement is easy. All it takes is contacting your insurance provider to let them know what changes you require. They’ll also be able to advise you on how an endorsement will impact the cost of your coverage.
And since your business will inevitably go through changes along the way, it’s a good idea to review your policies yearly to ensure they continue to meet your business’s needs. Keep in mind that you can add an insurance endorsement whenever you need it – whether that’s at the start of a new policy, mid-term, or during renewal.
Want to learn more about adding an endorsement to your insurance policy? Reach out to one of our expert brokers anytime to learn about your coverage options.