Homeowners Insurance Endorsements and Floaters

Endorsements and floaters are two options policyholders have for dealing with homeowners insurance limits and exclusions that may leave them vulnerable. Standard homeowners insurance policies are specific in terms of the types of coverage provided and the amount of belongings insured. This results in coverage gaps and insufficient insured value. Endorsements and floaters help homeowners obtain additional financial coverage and protection for their property and belongings.

Insurance endorsements vs. floaters

What is the definition of an insurance endorsement? Endorsements (also known as riders or options) allow you to increase the overall limit for specific types of items. You effectively "purchase" more coverage and protection, and your insurer will reimburse you up to the increased limits. They are the less expensive of the two options because, while the overall limit may be increased, an existing limit per item typically remains.

What is a scheduled floater? Individual item scheduling with what are sometimes referred to as "floater" policies is more expensive, but allows for higher limits per item. A floater is any single valuable that would exceed its category limit on its own. Floaters also offer more comprehensive coverage and permit claims such as accidental loss, which homeowners insurance does not cover.

Here's an example of how endorsements differ from scheduling:

• Assume you have two $2,000 rings that need to be covered (a total value of $4,000). Your second ring would not be completely insured if your policy's standard per-item claim limit is $2,000 and your overall limit for jewelry is $2,500. To cover both rings, you should get an endorsement and increase your overall limit to $4,000.
• If you only have one $10,000 ring, increasing your overall claims limit will not help you because endorsements have individual limits. Some insurers may even refuse to increase an endorsement to that amount. However, if you schedule the $10,000 ring with a floater policy, you are specifically insuring it for its appraised value, which would cover it adequately.

Types of endorsements and floaters

Below are some of the most common and obscure endorsements and floaters.

Sewer and drain backup: Also called "water backup," a backed-up sewer or drain can cause significant damage to a home. It is frequently excluded from homeowners insurance policies, and flood insurance policies do not cover it. If your policy does not cover sewer and drain backup, you should think about adding it, especially if you have a basement with a sump pump.

If a pump is overwhelmed by heavy rain or fails, the basement and anything stored there could suffer significant damage. Adding the endorsement almost always comes at a low annual cost of around $40-$50. If you have a sump pump, you should get this coverage.

Jewelry, furs and similar valuables: Since jewelry, furs, watches, electronic equipment and other high-value items can be easily stolen or lost due to a peril, most policies have an overall claim limit between $1,000 and $2,000.

A $2,000 limit on jewelry, in particular, is not very high. If the total value of your items in the category exceeds your overall limit (especially if only a few items represent that value), you should purchase an endorsement. Remember that policies have per-item limits, so if one item exceeds your overall claim limit, you should schedule it with a floater policy.

Sports equipment and musical instruments: Sports equipment and musical instruments, like other categories, have per-item and overall claim limits. Typically, the limits range from $500 to $2,000. Make a list of everything you own that could fall into one of these categories.

A couple of baseballs will not push you over the sports claim limit, but a set of golf clubs might. When it comes to instruments, you might not be concerned about a harmonica, but an individual violin, guitar, or piano could easily be valued above the typical limits that insurers set by default.

Sinkhole coverage: This endorsement protects insured property from direct physical loss or damage caused by "sudden settlement" or a sinkhole. Homeowners insurance policies may cover "catastrophic ground cover collapse," but the event may have to meet a set of criteria to qualify. Earthquake insurance expressly excludes sinkholes and other land damage, including large cracks or holes that appear on your property.

Sinkhole endorsements effectively cover sinkholes that do not meet all of the criteria for homeowners policies and are excluded from earthquake insurance. Sinkholes are uncommon, but some states, such as Florida, are more vulnerable to them than others. If you live in an area prone to sinkholes, you should think about purchasing this endorsement.

Identity theft: This endorsement, formerly known as identity fraud expense coverage, protects against identity-related crime. These policy endorsements are becoming more popular as the number of identity theft crimes rises. According to Javelin Strategy & Research, more than 11 million adults in the United States were victims of some form of identity crime in 2009, with a total loss of $54 billion.

This insurance is not like other types of insurance. It is essentially insurance that reimburses you for the cost of services to restore your identity. Assume you are a victim of identity theft and someone uses your credit card to make a fraudulent purchase. The credit card company should remove the fraudulent charges at no cost to you. However, if you need to defend a lawsuit brought against you by a merchant, a financial institution, or a collection agency, this endorsement will reimburse you for the cost of doing so.

Inflation guard endorsement: An inflation guard endorsement automatically increases the coverage limit on a home to account for inflation on a regular basis. Although coverage increases over the course of a policy period, the higher premium that results is usually not billed until the time of renewal. This feature is already built into the majority of insurers' homeowners insurance policies.

When you go to renew your policy, for example, you'll notice that your coverage limit and premium have been slightly increased. Homeowners insurance policies should be reviewed annually, regardless of whether inflation protection is included as part of the policy or as an endorsement. This review should account for inflation as well as other changes, such as the need to add additional endorsements or schedule specific items.

Assisted living care coverage: Due to its rarity, few insurance companies offer this special endorsement. As a result, it is not coverage that the majority of people require.

It pays for the expenses of an assisted living facility for a blood, marriage, or adoption relative of the insured who is not a member of their household. It also covers the relative's expenses up to a certain limit for items such as hearing aids, eyeglasses, contact lenses, false teeth or dentures, a medical-alert device, walking aids, and wheelchairs while they are in the facility. It excludes hospice care.

Boats and other watercraft: Boats and other watercraft are usually not covered once they are on the water or away from the policyholder's home. Watercraft is also sometimes excluded from liability coverage under homeowners insurance, which is why this endorsement exists. It covers liability and medical payments for motor watercraft with more than 25 total horsepower and a length of more than 26 feet (including sailing vessels).

Yard and garden: This endorsement expands coverage and raises the limit for landscaping and tools. The endorsement includes items such as trees, plants, and riding lawn mowers. For many policyholders, the existing coverage may be adequate. However, if your property has a lot of landscaping and foliage, you should think about getting this endorsement.

Remember that this endorsement has an overall claim limit as well as likely item limits. If you need to cover a specific tree, plant, or item, you may need to schedule it.

Refrigerated property coverage: This coverage protects the contents of freezers and refrigerators in the event that electrical service to a device is interrupted. The endorsement typically has a low limit as well as a deductible. Unless you have an unusually large number of items stored in freezers or refrigerators, you probably don't need this coverage.