Do You Need Insurance Endorsements for Your Business?
Insurance endorsements, or riders, are modifications to an insurance policy to include additions, deletions or exclusions. They are used to customize a policy to best fit your needs and budget.
Typically, endorsements make it possible for you to buy insurance that truly fits your needs, either by adding protection not included in the original policy or removing coverage you don’t need.
Basic Components of a Policy
Insurance policies generally have these basic elements:
- Insuring agreement – a list of named perils or risks the policy provides protection against.
- Exclusions – lists losses or events not covered by the policy.
- Conditions – policy terms the insured must meet in order to be protected.
These are typical areas modified by endorsements.
How Small Businesses Use Insurance Endorsements
It is common for small business owners to add insurance protection when the policy excludes it as a risk. Other common reasons for attaching an endorsement to a policy include:
- Insured wants to protect an additional individual or item
- Insured wants to include different coverage terms
- Insured wants to extend coverage
General Types of Endorsements
These are endorsements written and published by insurance organizations like the American Association of Insurance Services (AAIS) and the Insurance Services Office (ISO). Standard endorsements can be less risky than ones created by the business. These kinds of endorsement templates are available through subscription from the publishing organization.
Non-standard endorsements are those developed by the insurer for a specific policy holder. This might be done in cases where the particular endorsement is not included in standard endorsements. Many insurers will create their own endorsement statements using standard endorsements as template.
The insured or insurer can voluntarily add an endorsement to a policy. Voluntary endorsements might be added because of the particular kind business. If a business sells alcohol, for example, the insured might request that a liquor liability endorsement be added to a general liability policy. An example of an endorsement made by the insurer could be the exclusion of something like asbestos claims from liability coverage.
Policies covering specific types of operations can feature their particular kinds of endorsements, such an endorsement for a business’s general liability policy that states that the policy must include a professional liability exclusion.
Some endorsements are mandated. For example, the Insurance Services Office (ISO) mandates endorsements on policies that provide a certain type of coverage.
State-mandated endorsements might add requirements to protect individuals, such as restricting the insurer’s ability to cancel a policy. ISO mandates some endorsements, such as requiring all policies provide a certain exclusion to all general liability policies.
Common Insurance Endorsements
There are a variety of endorsements that a business owner might require, the most common ones are:
- Additional insured endorsement
- Prior acts coverage endorsement
- Extended reporting period endorsement
- Equipment breakdown endorsement
Additional Insured Endorsements
Additional insured (AI) endorsements are used by businesses to add a person or entity to a policy as an insured. Typically, the person or company added can be a general contractor working for the named insured. It is often requested on a variety of insurance lines, such as professional liability and commercial auto insurance.
The most common is commercial general liability (CGI). The named insured requests this endorsement to ensure that the appropriate organization or person is held financially responsible in the case of a risk occurrence.
Prior Acts Coverage
A prior acts coverage endorsement covers claims made on events that happened before the purchase of the liability insurance policy. Certain claims take time, and the insurance company typically includes a retroactive date at a point that is prior to the first date of coverage.
An example is a doctor who buys a new malpractice policy with a prior acts endorsement. If a claim is made on an event that occurred before the new policy came into effect but after the specified retroactive date, it would be covered by the current policy.
If an insurance company doesn’t include a retroactive date. These kinds of endorsements are considered full prior acts coverage. Any claims made during the current policy’s coverage period would be covered.
Extended Reporting Period Endorsement
An extended reporting period (ERP) can be added to a claims-made professional liability (called errors and omissions insurance) policy. You can submit a claim even following the expiration of the policy. Two different kinds of ERPs are available: basic extended reporting period and supplemental extended reporting period.
A basic ERP is commonly offered for a free 30-day or 60-day extension of a policy if it is cancelled or not renewed. Supplemental ERPs are purchased from your policy’s provider, usually extending the policy for one to five years. Some insurance providers also offer ERPs that are indefinite.
Equipment Breakdown Endorsement
This kind of endorsement to your commercial property insurance will reimburse you for loss or damage including repair or replacement of equipment as well as time and labor, income loss, ruined inventory, and other necessary expenses.
Types of equipment typically covered include the following:
- Computers and communications
- Air conditioning and refrigeration systems
- Boilers and pressure equipment
Business Insurance Can Be Your BFF
Your business insurance can help your company be safe in the event of risk, including financially. From general liability and commercial property insurance to professional liability coverage, the insurance you select and endorsements you may add can give you and your employees peace of mind. Used well, endorsements can customize your policy to best fit your needs. An insurance professional can help.
Discover the different kinds of business insurance and learn more about coverage you might need to add on. This information can help get you started. The EINSURANCE website can also give you insurance quotes quickly, which is a good place to start.