Your homeowners insurance company will pay to have your house rebuilt if it gets severely damaged or destroyed by a covered peril. Construction costs increase over time in response to inflation.
An inflation guard endorsement can protect you from rising costs for materials and labor so you don’t wind up underinsured. If you have to file a claim and you don’t have inflation guard coverage, you might have to pay some of the cost to rebuild your house out of your own pocket.
How Does an Inflation Guard Endorsement Work?
In many cases, homeowners insurance companies automatically include an inflation guard endorsement in a standard policy. If that’s the case, the coverage limit increases from time to time to keep pace with inflation. Homeowners insurance companies figure out how much coverage limits have to rise to keep up with local increases in costs for construction materials and labor and make the necessary adjustments.
A homeowners insurance policy includes dwelling coverage, which applies to the house itself, as well as coverage for other structures (a fence, shed, detached garage, etc.), the house’s contents, and additional living expenses (extra costs you will incur if your house is damaged and uninhabitable). Some homeowners insurance companies only adjust dwelling coverage to account for inflation, while other insurers make adjustments to some or all of the other categories.
Do You Have Inflation Guard Coverage?
When you get your homeowners insurance policy renewal information, check to see if the insurer adjusted your coverage to account for inflation and, if so, whether the change applied only to dwelling coverage or whether the company raised your coverage limits in other categories. If your coverage was increased, you will notice a small rise in your premiums.
If an inflation guard endorsement isn’t included as a standard part of your homeowners insurance policy, you may have to ask the insurer to add it. If you aren’t sure if you have inflation guard coverage, check your policy documents or contact your insurance company or agent.
Will Inflation Guard Coverage Protect You If You Make Home Improvements?
If you renovate, build an addition or add another structure to your property, those changes will increase your house’s value and the cost to rebuild it if it gets damaged or destroyed. Contact your homeowners insurance company and notify the insurer of the changes you have made so you can make sure that you have adequate coverage.
Even if your insurer automatically raises your coverage limits to keep up with inflation, the higher amounts may not be enough to cover your home’s new, higher value. Raising your coverage limits will cost you more in premiums, but it will be money well spent. If you don’t inform the insurance company of the upgrades you have made, your house gets severely damaged or destroyed, and you file a claim, you might not receive enough money to rebuild it the way it was.
