Endorsements and Scheduled Property
Homeowners policy endorsements
Several endorsements can be added to a homeowners policy either when the policy is issued or mid-term (usually for an additional premium). Below are endorsements that may appear on a state licensing exam.
Inflation guard
This endorsement automatically increases the limits of liability for Coverages A, B, C and D each year by the percentage shown in the endorsement, applied pro rata during the policy period. The goal is to keep coverage aligned with increases in replacement cost over time.
Business pursuits
This endorsement applies to certain occupations where the insured is an employee (for example, teachers, salespeople, or clerical workers). It extends liability coverage for eligible business pursuits of an insured employee, typically occurring away from the residence premises.
It does not cover a business the insured owns or financially controls, or one in which the insured is a partner or member, so it does not cover most home-based businesses. It also excludes professional services other than teaching and bodily injury to a fellow employee injured in the course of employment. Without this endorsement, liability for BI/PD arising out of eligible business pursuits is excluded.
Permitted incidental occupancies
This endorsement deletes the homeowners policy exclusion that removes liability coverage for business activities on the premises. It allows liability protection when the business activity is incidental to the occupancy of the home (for example, the insured offering piano lessons in the home).
Home day care
This endorsement extends homeowners coverage to include liability protection arising out of operating a home day care business on the insured’s premises. The premium is calculated by head (number of children).
This endorsement specifically excludes liability arising from the following:
- Sexual molestation or abuse
- Injury arising from the use of saddle animals
- Motorized land vehicles or watercraft
(Employee injuries and corporal punishment are also commonly excluded.)
Mobile homes
A mobile home endorsement adapts a homeowners policy to insure a mobile home: it makes the residence premises the mobile home and other structures on land the insured owns or leases and lives on, and adjusts the property coverages to fit it. Other mobile home endorsements can be added to it, such as transportation/permission to move, which for 30 days covers collision and upset while the home is in transit, and stranding or sinking while it is carried on a licensed ferry line. Some insurers write mobile homes on a separate mobile home policy instead.
Watercraft
This endorsement provides liability protection for certain types of watercraft. It extends liability for larger watercraft arising out of the ownership, maintenance, or use of the watercraft described in the endorsement.
Personal injury
When added, this endorsement amends Section II of the policy to include liability for personal injury caused by the insured.
Personal injury is different from bodily injury. It can include libel, slander, invasion of privacy, defamation, wrongful eviction or entry, and similar offenses.
This endorsement will not cover personal injury arising from:
- Contracts
- Violation of law
- Business activities
Earthquake
A homeowners policy excludes earth movement, so the shaking damage of an earthquake is covered only if this endorsement is added. For an additional premium, the insurer covers direct physical loss to property covered under Section I caused by earthquake, including land shock waves or tremors before, during or after a volcanic eruption. Under the standard endorsement, all earthquake shocks within a 72-hour period count as one earthquake.
The endorsement has its own percentage deductible, which replaces the policy’s regular deductible for an earthquake loss. It is a percentage of the Coverage A or Coverage C limit, whichever is greater. The endorsement does not cover flood or tidal wave, even when an earthquake causes it. It does not increase the policy limits or pay to fill land, and the insurer may exclude exterior masonry veneer. Earthquake insurance and its deductible are covered further in Flood and Other Limited Policies.
Personal property replacement cost
This endorsement changes how losses to personal property are settled. Instead of paying on an actual cash value basis, the policy reimburses covered personal property losses on a replacement cost basis.
Without the endorsement, a homeowners policy pays for personal property at actual cash value: replacement cost less depreciation. With it, the insurer pays the cost to replace the item at the time of loss with no deduction for depreciation, or the full cost to repair it if that is less, up to the Coverage C limit and any special limit that applies to the item. The endorsement also applies to awnings, carpeting, household appliances, outdoor antennas and outdoor equipment.
For example, a five-year-old television would cost $1,000 to replace today and has an actual cash value of $500. The unendorsed policy pays $500. With the endorsement it pays $1,000. The deductible applies either way.
Except for a small loss, the insurer pays only the actual cash value until the item is actually repaired or replaced. The insured may claim the actual cash value first and then, within the time the endorsement allows, claim the difference after replacing the item.
Some property is not eligible and is still paid at actual cash value:
- Antiques, fine arts, paintings and similar articles that cannot be replaced
- Memorabilia, souvenirs, collectors’ items and similar articles whose age or history contributes to their value
- Articles not kept in good or workable condition
- Articles that are outdated or obsolete and are stored or not being used
Unit owners coverage
This endorsement can be used to amend Coverage A of an HO-6 policy to provide coverage for risks of direct loss. It makes the perils insured under Coverage A of an HO-6 identical to those insured by the HO-3, helping cover additional alterations and improvements made to a condominium unit.
It effectively makes HO-6 Coverage A “open perils” like an HO-3.
Water back-up and sump over-flow
This type of loss is generally excluded under a homeowners policy. For an additional premium, it may be covered. Typical limits vary ($5,000-$50,000) depending on the carrier.
Ordinance or law
A homeowners policy already includes a limited amount of ordinance or law coverage as an additional coverage: up to 10% of the Coverage A limit for the increased cost of construction, demolition or repair that a building code or similar law requires after a covered loss. This endorsement raises that 10% to a higher percentage, which is shown in its schedule. On a tenant’s HO-4, the percentage applies to the building additions and alterations limit instead of Coverage A.
For example, a home is insured for $300,000 and the endorsement shows 25%. After a covered fire, up to $75,000, instead of $30,000, is available for the added cost of rebuilding to the current code.
Scheduled personal property/personal articles floater
Coverage C limits what it pays for some valuable property, such as theft of jewelry and furs, and in most forms it covers personal property only against named perils. An insured who owns valuable articles can insure them separately in one of two ways: a scheduled personal property endorsement on the homeowners policy, or a personal articles floater.
Scheduled personal property endorsement
This endorsement allows an insured to individually list (schedule) items that have a higher value than what the basic policy covers. Each class of property insured has its own amount of insurance. The endorsement provides for nine classes:
- Jewelry
- Furs and fur-trimmed garments
- Cameras
- Musical instruments
- Silverware
- Golf equipment
- Fine arts
- Postage stamps
- Rare and current coins
This coverage is typically written on an open-perils basis, and the policy’s deductible does not apply to it. Under the standard endorsement, the scheduled property is covered worldwide. Fine arts are paid at the amount scheduled, which is agreed to be their value. Other scheduled property is paid at the least of its actual cash value, the cost to repair it, the cost to replace it and the amount of insurance. Newly acquired jewelry, furs, cameras, musical instruments and fine arts of a class already scheduled are covered automatically up to a limited amount, if the insured reports them within the time the endorsement allows and pays the premium.
Personal articles floater
A personal articles floater typically insures the same kinds of valuable personal property, but as a separate inland marine policy instead of an endorsement. It is called a floater because the coverage is written to follow the property rather than a location. Like the endorsement, it is typically written on an open-perils basis and typically covers the articles wherever they are.
The two typically differ in how they are written, not in what they are for:
| Scheduled personal property endorsement | Personal articles floater | |
|---|---|---|
| What it is | An endorsement attached to a homeowners policy | A separate inland marine policy |
| Who can buy it | Only an insured who has the homeowners policy it is attached to | Typically anyone who owns the articles, with or without a homeowners policy |
| Terms that govern it | The endorsement, together with the homeowners policy’s definitions and conditions | Its own declarations and conditions |
| If the homeowners policy ends | The scheduled coverage ends with it | It is a separate policy, so it does not depend on the homeowners policy |
Lesson summary
Homeowners insurance policies can be enhanced with various endorsements, offering additional coverage for specific needs:
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Inflation Guard: Automatically increases the Coverage A, B, C and D limits each year by a set percentage to keep up with replacement value changes over time.
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Business Pursuits: Extends liability coverage for eligible business pursuits of an insured employee, typically away from the residence premises.
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Permitted Incidental Occupancies: Allows liability protection for business activities that are incidental to home occupancy.
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Home Day Care: Provides liability protection for operating a home daycare business with specific exclusions.
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Mobile Homes: Adapts a homeowners policy to insure a mobile home; some insurers write mobile homes on a separate mobile home policy instead.
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Watercraft: Provides liability protection for certain types of watercraft owned, maintained, or in use by the insured.
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Personal Injury: Includes liability for personal injury such as libel, slander, and more, excluding specific instances.
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Personal Property Replacement Cost: Reimburses loss of personal property on a replacement cost basis instead of actual cash value.
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Scheduled Personal Property: Allows listing high-value items not covered by the basic policy individually. A personal articles floater typically insures the same kinds of property as a separate inland marine policy.
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Unit Owners Coverage: Modifies HO6 policy to provide coverage for direct loss risks, aligning it with HO3 policy.
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Water Back-up and Sump Overflow: Covers losses typically excluded from a homeowner policy for an additional premium.
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Earthquake: Covers earthquake damage, which the earth movement exclusion otherwise removes, subject to a percentage deductible.
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Ordinance or Law: Raises the built-in ordinance or law amount from 10% of Coverage A to a higher percentage.