Canadian Accredited Insurance Broker (CAIB) One Practice Exam

What is an endorsement in an insurance contract?

1. An amendment to decrease coverage limits

2. A written agreement between the insured and insurer to change terms of the contract

3. A notice of claim rejection

4. An official request for policy cancellation

The correct answer is: A written agreement between the insured and insurer to change terms of the contract

An endorsement in an insurance contract refers to a written agreement between the insured and the insurer that alters the terms of the original policy. This can include changes such as adding or removing coverage, adjusting limits, or specifying exclusions. Endorsements are essential because they provide a formal way to modify the contract, ensuring that both parties clearly understand and agree to the new terms. By understanding that endorsements serve as a mechanism to adjust coverage or terms, it becomes clear why this option is correct. An endorsement essentially allows policyholders to tailor their insurance to better meet their needs without requiring a completely new policy. The other options do not accurately describe an endorsement's role in an insurance contract. For instance, an amendment to decrease coverage limits is too specific and does not encompass the wider range of potential changes that an endorsement can make. A notice of claim rejection refers instead to the insurer's communication regarding a particular claim and does not involve any modification of the policy itself. An official request for policy cancellation pertains to discontinuing the coverage rather than changing it. Thus, understanding the broad and pivotal role of endorsements is crucial in grasping how insurance contracts can be tailored.