Agents and brokers play an important role as trusted advisers for their clients.
Generally, buyers know they need insurance coverage, but they often aren’t sure what their specific requirements are. And as the current Liberty Mutual commercial notes, most buyers don’t read every word of the policy or its endorsements, which are a key part of any insurance policy.
The basic policy is designed to cover the average home or auto risk; however, many of these risks aren’t so basic. Instead of specifically tailoring policies to each risk, a standard policy is used with the option of many varied endorsements.
That’s where the agent or broker comes in. It’s their job to explain the policy to the buyer, including the available endorsements, and they need to know which endorsement best fits the client’s situation.
What follows is a sampling of six of the most common endorsements and explanations that agents and brokers can share with clients.
If parents financially assist a child to purchase a home and want to be sure their interest is protected in event of a loss, they want to be listed on the policy. (Photo: iStock)
1. Additional Insured Residence Premises HO 04 41
This form is designed for those who aren’t residents of the property, but have an interest in the property. If parents financially assist a child to purchase a home and want to be sure their interest is protected in event of a loss, they want to be listed on the policy. This form allows them to do so.
The person or organization must be scheduled, as well as the nature of the interest, which could be for the amount of the down payment, for example, or the amount of the mortgage on the dwelling.
With more people cohabitating, many don’t realize that, although the insured considers them household members, the insurance policy doesn’t consider them insureds. (Photo: iStock)
2. Other Members of Your Household HO 04 58
This is a particularly important endorsement. With more people cohabitating, many don’t realize that, although the insured considers them household members, the insurance policy doesn’t consider them insureds.
This endorsement corrects that situation. The person to be insured must be listed on the endorsement by name; however, those listed on the endorsement can’t be insureds, guests, residence employees, tenants, roomers, or boarders.
- Insureds and residence employees are categories in and of themselves, and already have coverage provisions.
- Tenants, roomers or boarders are not considered family; they are paying to rent space or receive room and board in exchange for certain services and need their own tenant’s policies to provide coverage for their property and liability exposures.
- Guests are a unique category. They generally don’t reside at the dwelling for more than a short period of time (for example, visiting family or friends on vacation, or family helping out a family member with a medical emergency).
The endorsement states clearly that the carrier is relying on information provided by the insured regarding the residency of the individual in question. The insured agrees to notify the carrier in writing if the scheduled person changes residency or status as a household member. If a couple marries or the scheduled person moves out, then this endorsement is no longer needed.
“Other structures” are not just buildings: They can include gazebos, patios, barbeque pits, swing sets and many other items put into backyards. (Photo: iStock)
3. Other Structures Increased Limits – HO 04 48
Other structures are covered at 10 percent of the coverage A limit. For many this makes sense, as often, the other structure is a garage or small shed.
Remember that “other structures” are not just buildings: They can include gazebos, patios, barbeque pits, swing sets and many other items put into backyards. For these structures, or more than one of these structures, 10 percent of the coverage A limit may leave the insured underinsured, possibly significantly. Therefore, an increase in the other structures limit is necessary.
Household appliances are defined as equipment or appliances usual to the occupancy, maintenance or use of a dwelling that generate, transmit, or utilize energy to operate. Such appliances can include a hot tub. (Photo: iStock)
4. Mechanical Breakdown – HO 06 33
This is a newer, unusual endorsement that was issued in 2014. It provides coverage for mechanical breakdown of household appliances, something that is normally excluded. The basic limit is $5,000 and must be listed on the schedule. Coverage may be increased to $10,000, $15,000, $20,000, $25,000 or $50,000. The limit, which is an aggregate, must be shown on the schedule.
Two definitions have been added: “mechanical breakdown” and “household appliance.”
- A mechanical breakdown is defined as a direct loss to a household appliance located on the premises caused by, resulting from, or consisting of failure of pressure or vacuum equipment, mechanical failure, electrical failure, including arcing, or rupture, bursting, bulging, implosion, or steam explosion. Mechanical failure is left open for interpretation. Per Merriam Webster online, mechanical is something related to machinery, and failure is a state of inability to perform a normal function or an abrupt cessation of normal functioning; so, a switch that stopped working would be a mechanical failure.
- Household appliances are defined as equipment or appliances usual to the occupancy, maintenance or use of a dwelling that generate, transmit, or utilize energy to operate. Such appliances can include central air conditioning, central vacuums, chairlifts and elevators, electric vehicle charging stations, heating systems, including water heaters, home automation and security systems, saunas, hot tubs, therapeutic baths, swimming pool pumps and filtration systems, stoves, wall ovens, refrigerators, well water pumps, and sump pumps. Not included as appliances are any parts of a plumbing system, fire protection system, roof drain, gutter, downspout, or similar fixtures or equipment.
Loss settlement is typically the lesser of the cost to repair the property, the cost to replace with like kind and quality, the amount actually spent to repair or replace the damaged appliance, or the limit shown in the schedule.
Related: My homeowners’ policy covers that?
This endorsement provides limited back-up coverage for sump pumps and related equipment. (Photo: iStock)
5. Limited Water Back-Up and Sump Discharge or Overflow Coverage – HO 04 95, DP 04 95
Homeowners and Dwelling policies generally include coverage for discharge or overflow from plumbing, heating, air conditioning, or automatic sprinkler systems or a household appliance. The policy then states that a sump, sump pump, or related equipment is not considered part of the plumbing system or a household appliance. This endorsement provides limited back-up coverage for sump pumps and related equipment.
Water or waterborne material that originates from within the dwelling and backs up through sewers or drains, or overflows or is discharged from a sump, sump pump, or related equipment is covered, even if the overflow or discharge is due to mechanical breakdown or power failure. However, coverage doesn’t apply to direct loss of the sump pump or related equipment that is caused by the breakdown or power failure. If the motor to the sump pump quits working and water is then discharged through the basement, the cleanup of the water is covered, but the cost to repair the pump is not.
This is becoming a more common risk as several gated “seniors” communities encourage residents to use golf carts within the gates rather than driving cars. (Photo: iStock)
6. Owned Motorized Golf Cart Physical Loss Coverage – HO 05 28, DP 05 28
Coverage for golf carts on the homeowners and dwelling policies is quite limited, and the endorsements are the same for each. A “golf cart” is defined as a motorized conveyance listed in the schedule, including permanently installed equipment, accessories or parts. The cart must be designed to carry up to four people on a golf course for the purposes of playing golf and it can’t be built or modified afterwards to exceed 25 miles per hour on level ground.
Physical damage coverage only applies if the vehicle is used either to service a residence premises or if it was designed to assist the handicapped. Unless the cart has been modified to assist the handicapped, the only type of covered loss would be servicing the residence (for example, if the insured is using the cart to move plants around the yard and drives into a tree, damaging the cart).
This is becoming a more common risk as several gated “seniors” communities encourage residents to use golf carts within the gates rather than driving cars. If the insured drives the cart off the premises to visit a neighbor and hits a tree, damaging the cart, for instance there is no coverage. An endorsement, therefore, is needed.
The exclusions are a combination of homeowners and automobile policy exclusions, along with a few unique exclusions. Coverage does not apply, for instance, if, at the time of loss, the cart is being operated in or practicing for any speed contest or organized race, rented to others, used to carry persons or property for a fee, or used for business except while on a golfing facility.
Vandalism or malicious mischief are excluded if the cart has been stored for the winter at a golf club or other facility that has been unoccupied, closed for the season, or was not in operation for more than 60 consecutive days before the loss.