Common Homeowner Policy Endorsements

Insurance policies are written for the broadest market possible. To keep premiums affordable, only the coverage required by most people is included in the standard homeowners insurance policy. For instance, the standard policy does not include coverage for a home business, because most people don't have a home business. Therefore, to include such coverage in the standard policy would increase premiums even for people who don't have a home business. An endorsement (aka rider) is a written modification that either adds to or deletes 1 or more provisions of the general policy to serve particular needs. There are more than 100 endorsements for the standard homeowner's policy, including one for identity theft, but the following are the most common.

Inflation Guard Endorsement

Generally, if a home is not insured for at least 80% of its value, a coinsurance penalty will be applied, so the insured will receive less than the replacement cost if there is a loss. To prevent this, the homeowner can purchase an inflation guard endorsement, where the amount of the insurance is increased pro rata annually by an amount that the homeowner chooses—usually 4% or 6%. For instance, if a home is insured for $100,000 and the insured chooses a 4% rate of increase, then if the insured suffers a complete loss in 6 months, the insurance will pay $102,000; if the loss occurs 9 months later, then the payment will be for $103,000; and if the loss occurs a full year later, the payment will be the full 4% annual increase — $104,000.

Because the coverage for other structures, personal property, and loss of use are a percentage of Coverage A, which insures the main residence, this increase in coverage also applies to those sections. For instance, since the limits for personal property is 50% of the main coverage, the policy limit for personal property in the above example would be $50,000, which would increase to $52,000 (4%) at the end of the 1st year.

Scheduled Personal Property Endorsement

There is some personal property, such as jewelry or musical instruments, that have low coverage limits compared to what they may be worth, because most people don't have such property so they shouldn't have to pay the premium for it, and because it is difficult to verify the value of such items.

However, the homeowner can purchase a scheduled personal property endorsement that covers specified property for a specified value that is agreeable to the insurer. Generally, this is an open risks policy that pays for any direct loss, unless it is specifically excluded. The payout is equal to the agreed value loss settlement, which is the amount that the insurer agreed to pay in the event of a complete loss. Thus, if jewelry that was stolen was insured for $10,000, the insurer will pay the insured $10,000. There is no deduction for depreciation and no deductible.

Personal Property Replacement Cost Endorsement

The standard homeowners policy pays actual cash value for damaged or stolen personal property. Because of depreciation, actual cash value is almost always significantly less than replacement cost. To remedy this, the homeowner can purchase the personal property replacement cost endorsement, which will usually pay the replacement or repair cost without any deduction for depreciation. However, it does not apply to scheduled personal property, which has a separate endorsement, and the actual payment from this endorsement is the least of the following: repair cost, replacement cost, total limits for personal property, or the limit for a particular item.

If the amount exceeds $500, then the item must be either be repaired or replaced. Besides scheduled property, other excluded property includes property in poor condition and stored property that is little used.

Personal Injury Endorsement

Although the standard homeowners policy covers bodily injury and property damage, it does not cover personal injury, which includes false arrest, wrongful eviction or entry, invasion of the right of privacy in a room or dwelling, slander and defamation, or the violation of the person's right to privacy—in other words, injuries that don't affect the body. The personal injury endorsement covers the liability that arises from a personal injury.

Home Business Endorsement

Many people operate a business from their home. The standard policy has a limit of $2,500 for business property and legal liability for the business is specifically excluded. The home business endorsement increases the coverage for property damage to the limits of Coverage C of the homeowners policy, which is 50% of the coverage for the main residence, and includes coverage for accounts receivable, records, and lost income and extra expenses when the business must be suspended because of a covered loss. Coverage for business property located outside of the home is increased from $500 to $5,000.

The liability coverage includes bodily injury, property damage, and personal injury. Note, however, that it does include professional liability. Thus, if a lawyer worked from a home office, he would still have to purchase malpractice insurance for malpractice claims.

Earthquake Endorsement

The earthquake endorsement covers not only earthquakes, but volcanic eruptions, landslides or any other type of earth movement. A single earthquake is defined as all shocks occurring within a 72 hour period. The earthquake endorsement has a percentage deductible equal to 5% of the coverage for the main residence, with a minimum deductible of $250. Higher deductibles can be chosen to reduce the cost of the premium. However, in states with a relatively high frequency of earthquakes, such as California, the percentage deductible can range from 10% to 25%. next: Save on Homeowners Insurance >