What is an endorsement in an insurance policy?

An endorsement in an insurance policy is an amendment that modifies the original terms of the policy. This can include adding new coverage, changing existing coverage, or altering certain conditions under which the insurance will operate. Endorsements are crucial for customizing an insurance policy to meet specific needs or circumstances that may arise after the policy is issued.

For example, if a policyholder wants to add coverage for a newly acquired piece of equipment, an endorsement would allow this addition without needing to rewrite the entire policy. This flexibility is essential in the insurance world as it ensures that policies can adapt over time in response to the insured's changing needs.

The other options represent different concepts in insurance. A cancellation of a policy refers to the termination of the insurance contract, often for reasons such as non-payment or a change in risk factors. A test for underwriting purposes involves assessing a risk to determine whether to provide coverage or at what cost, unrelated to an endorsement. A reduction in coverage limits signifies a decrease in the amount of protection provided under the policy, which is a change in the terms rather than a method of altering coverage through endorsement.