Arizona Adjuster Practice Exam

What endorsement should be added when Candy Land installs an automatic sprinkler system in its BOP?

1. Business Property Coverage

2. Protective Safeguards

3. Fire and Theft Coverage

4. Business Income Coverage

The correct answer is: Protective Safeguards

When Candy Land installs an automatic sprinkler system in its Businessowners Policy (BOP), it is essential to add the Protective Safeguards endorsement. This endorsement is specifically designed to address enhancements in the risk management of a business by mandating certain protective measures, such as the installation and maintenance of sprinkler systems, alarms, or fire extinguishing equipment. The Protective Safeguards endorsement works to provide a premium credit for the insured while simultaneously ensuring that the insurer understands the risk management practices in place. By having an automatic sprinkler system, the risk of fire damage is significantly reduced, which is beneficial to both the insured and the insurer. If a business has such systems in place, it usually leads to a decreased likelihood of loss and, consequently, lower insurance premiums. In this context, incorporating the Protective Safeguards endorsement not only reflects the proactive steps taken by Candy Land to enhance safety but also ensures compliance with the terms of the policy, which may require these measures for coverage to apply in the event of a loss.