Auto insurance can be complicated and expensive, and it's mandatory in 49 out of 50 states.

It's important to understand that a standard auto insurance policy covers only specific types of damage and liability, and your state's required coverage limits may be insufficient to protect you in the event of a serious accident.

To make sure your auto policy offers enough coverage, you may want to consider adding an endorsement to your policy.

What's an endorsement?

In simple terms, an endorsement (also referred to as a “rider”) is an amendment to your basic insurance policy that customizes it to your needs. An endorsement can be used to increase or decrease your coverage or to add extra people to your policy. While adding an endorsement will generally increase your premiums, it can also limit coverage and reduce your premiums, too.

You can add an endorsement to your policy at any time during the term of the contract. This enables you to modify your coverage as your exposure to risk changes. A standard auto insurance policy is somewhat limited in scope, so there are many auto policy endorsements available. Let’s look at a few of the most useful additions.

Auto loan/lease coverage

Most people cannot afford to buy their vehicle outright, so they enter into a loan or lease their vehicle. Unfortunately, the value of your new vehicle decreases significantly the minute you drive it off the lot. If you are unlucky enough to be in a serious accident or have your car stolen shortly after signing a lease agreement, it's highly likely that your insurance payout will not cover the cost of settling the loan. As a result, you could be left with a substantial bill.

For example, imagine that you bought a $25,000 car with no down payment and spread the payments over five years to keep it affordable, but the car was stolen a month later, at which time it was only valued at $20,000. Your insurance company paid you the $20,000 the car was worth, but you still owe the dealership around $4,600 ($25,000 minus the insurance payout and one month’s payment on the loan).

How can you avoid paying the balance out of pocket? A loan endorsement in this case would cover the difference between the actual value of the car and the amount you still owe. This form of endorsement is often called a “gap” policy; it covers the gap between the actual value and the amount left on the loan.

It’s important to note that this endorsement will not help you if you have fallen behind on your loan payments. It will only cover the amount of the loan that remains to be paid under the contract, not any late payments that are past due.

Trip interruption

This endorsement covers the unexpected, but unavoidable costs incurred if your vehicle breaks down (or is stolen) when you are far from home, leaving you stranded. Typically, the requirements are:

• You must be more than 100 miles from home.
• Your vehicle must be out of service for more than 24 hours.

While your standard auto policy will cover the damage to your car (and possibly the costs associated with towing it to a repair shop) or reimburse you for its theft, how would you cope in the meantime? You could be looking at substantial costs for accommodation, meals and alternative transportation unless you have a trip interruption endorsement on your auto policy.

Some trip interruption endorsements will even cover the cost of transporting your vehicle back home if you fall ill or are injured and unable to drive. This rider offers great peace of mind if you regularly travel long distances or are planning a long road trip.

Joint ownership coverage

Buying a vehicle can be a major financial hassle. It’s not surprising that more people are opting to share a car rather than absorb the full cost alone. However, while it is pretty straightforward to arrange insurance when you share a car with a family member who lives in the same house, a standard policy will not cover shared ownership with a friend or a family member who lives elsewhere. A joint ownership endorsement allows you to extend insurance coverage for a named vehicle to a wider range of people.

Transportation network driver coverage

While a standard insurance policy provides coverage for a passenger riding in your car, in most cases, there will be an exclusion to prevent coverage for fee-paying passengers. This has become an increasing problem for people working for ride-sharing platforms such as Uber and Lyft. Although these platforms offer some insurance coverage, it’s probably insufficient to protect your assets if a paying passenger is seriously injured. There’s also a gray area regarding coverage when a driver has logged into the rideshare system but not picked up a passenger.

If you’re going to use your vehicle to earn money by conveying passengers (and you are not operating as a licensed taxi driver), you need a transportation network driver endorsement.

Other useful auto endorsements

There are many other potentially useful endorsements. For example:

• A waiver of depreciation will make sure you get the purchase price (not the actual value) if your new car is totaled, which could be very useful if you are buying an expensive sports car.
• A rental vehicle endorsement extends your coverage to any rental vehicle you use (which means you don’t have to pay for the insurance provided by the rental company).
• You can also get an endorsement to cover recreational vehicles (such as jet skis and snowmobiles), even though you don’t actually need insurance to operate them.

Make sure your auto insurance meets your needs and offers the level of protection you require. If you think you might want to add an endorsement to your auto policy, speak with your insurance professional to find out what's available.