Inflation is either your enemy or your friend, depending on which side of the fence you’re on. As a homeowner, a climbing property value is among your very best of friends. That is, unless your home is in need of major repairs or replacement and your policy lacks an oh-so-valuable and yet often overlooked inflation guard endorsement. Never heard of it? You’re not alone. Here’s what you need to know.
What is an inflation guard endorsement?
Inflation guard is add-on coverage that annually increases in an effort to account for positive market shifts.
Generally, the rate of increase keeps pace with the rate of inflation – but not always. It’s worth regularly checking in with your broker to make sure the coverage offered through your inflation guard is adequate for your home.
Typically, you’ll see an auto-increase of between 2% and 5% annually on your coverage (note, not on your premium – though that will go up a little bit too).
What’s the benefit of inflation guard insurance?
Adding an inflation guard endorsement to your policy protects you from being underinsured should you need to rebuild your home due to fire, tornado or earthquake, as examples.
Let’s say you purchased your home for $500,000 and that after five years the cost of materials and labor to rebuild come in at $750,000. Unless you have regularly updated your policy or have inflation guard insurance, you could be as much as $250K out of pocket in the case of total reacquisition. An inflation guard endorsement mitigates the risk of a significant and tangible loss.
Should I add an inflation guard endorsement to my policy?
If you have found your forever home and plan to live in it for the rest of your days – or consider it a treasured component of your inheritance – adding an inflation guard endorsement to your policy is smart.
But, if you don’t anticipate staying in your home long or plan to unload it once values shoot up, you can probably forego this add-on coverage.
How do I get an inflation guard endorsement?
The first step is to study your policy to see if inflation guard insurance is already built into your coverage. (And, in fact, if you experience an annual increase in your premiums it might well be your inflation guard endorsement that’s responsible for the incremental expense.)
If you don’t already have coverage – and you live in an area where home values are likely to skyrocket – you should connect with your agent and see if adding an inflation endorsement would be wise for your insured provisions.
Of course, adding coverage will increase your monthly homeowners insurance bill, but it’s usually minimal.
Still not sure if inflation guard insurance is for you?
The world of property and homeowners insurance can be cumbersome to navigate – but you don’t have to go it alone. At Independent Insurance Associates, we are committed to setting you up with the coverage you need to protect your assets.
Get expert advice – contact us!