3 Questions About Inflation and Insurance


As the years go by, your home typically appreciates, and inflation can magnify this effect, raising construction expenses, material costs, and labor rates to increase the overall replacement value of your home. Ultimately, this means the amount the insurance company has to pay in the event of a loss is rising year over year, and your policy must keep pace with the growing value of your home.

How does inflation affect my insurance?

Typically, premiums, coverage limits, and other elements of your homeowners policy are set based upon the value of your home. As your home appreciates, your policy should be adjusted to cover the increased replacement cost of your home. Still, with inflation, the value of your home may outpace your coverage if limits aren’t regularly updated. This can create a gap between the amount your policy will cover and the amount it would cost to repair or replace your home in a claim, leaving you underinsured.

What’s worse is if you’re underinsured, some insurance companies may impose a penalty called coinsurance in the event of a claim or partial loss, which would mean you’d have to pay more out of pocket.

How do I avoid becoming underinsured due to inflation?

Fortunately, Westwood has you covered. Because we work with top insurance companies, most of the policies we write include Inflation Guard, an automatic annual increase applied to the coverage limits on your insurance policy to keep up with inflation’s effects on the costs of reconstructing or repairing your home. This can also protect you against coinsurance penalties due to the amount of insurance purchased being deemed inadequate.

Inflation Guard maintains adequate values on your insurance policy without transferring undue burden over to you. For example, even when coverage increases as much as 8%, premiums may only go up by 2% to 4%.

When should I talk to my Westwood agent?

Inflation Guard can help keep you protected, even as the value of your home and the cost of building materials, construction, and labor continue to rise. You don’t have to worry about encountering a claim only to find that you’re underinsured and stuck with unexpected expenses and penalties.

It’s still a good idea to check in with your Westwood agent if you make significant renovations to the property or if you have any changes in circumstances, like a change in occupancy. We’ll be sure you always have the right coverage at the best price. Reach out to Westwood today to learn more about Inflation Guard or evaluate your homeowners insurance to ensure you’ve got the right coverage.

Please Note: This article is for general informational and educational purposes only. It does not represent any specific insurance policy and does not modify any provisions, limitations, or exclusions of any current policy.