What Is Inflation Guard for Home Insurance?
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Inflation guard helps your home insurance coverage keep pace with inflation.
It automatically increases your coverage limits annually so you don’t end up underinsured due to rising costs.
Inflation guard is a standard part of most insurance policies, but can be added on to others.
When it comes to protecting your home, staying ahead of inflation isn't just smart — it's essential. As the cost of living increases, so does the cost to repair or rebuild your home. That's where inflation guard comes into play. It’s a home insurance endorsement that helps your coverage keep pace with the market. Without it, inflation could leave you underinsured.
What is inflation guard and how does it work?
Inflation guard automatically adjusts your home insurance policy limits to keep in step with inflation, which is the gradual rise in prices and fall in purchasing power over time.
With inflation guard, your coverage amount adjusts at a predetermined rate each year. This rate is typically from 2% to 4%, although it can be higher in some years. So if your home is insured for $200,000 and your policy has a 4% inflation guard rate, your coverage limit might increase to $208,000 the next year.
Inflation guard primarily applies to the dwelling coverage part of your home insurance. This is the part that covers the structure of your home itself. In some cases, it can also apply to other structures on your property, like a detached garage. Depending on your policy, inflation guard may also apply to personal property coverage.
The dwelling part of your home insurance policy often comes with replacement cost coverage. Replacement cost is the amount it would take to rebuild your home at current prices, using similar materials and construction standards. When inflation causes the prices of building materials and labor to rise, the replacement cost of your home also increases. Inflation guard helps close this gap between your coverage limits and rising replacement costs.
Inflation guard is often a standard part of many home insurance policies. But with others, it’s an optional endorsement. If it’s not included, consider asking your insurer if you can add it to your policy.
Who should consider inflation guard coverage?
Inflation guard can be helpful if:
You plan on staying in your home for many years.
You live in a rapidly developing or disaster-prone area that could face labor shortages.
You’re worried about covering unexpected increases in building costs.
Other ways to increase home insurance coverage
Beyond inflation guard, you may be able to add other coverage types to your policy to increase your home insurance limits.
Extended replacement cost coverage
Extended replacement cost coverage increases your dwelling coverage limit beyond the policy's stated amount, usually by a certain percentage (e.g., 20% or 25%). It provides an extra cushion if the cost to rebuild your home exceeds the policy limit. For example, if your home is insured for $200,000 and you have 25% extended replacement cost coverage, you can get up to $250,000 for rebuilding costs.
If you’ve made changes to your living space, whether it's upgrading a kitchen or finishing a basement, there could be a gap between your policy's dwelling coverage amount and its replacement cost. Learn more about home renovations and homeowners insurance.
Guaranteed replacement cost coverage
Guaranteed replacement cost coverage goes a step further than extended replacement cost coverage. It pays the full cost to rebuild your home as it was before the damage, even if this amount exceeds your policy limit. This is one of the most comprehensive forms of coverage and can be helpful if rebuilding costs have dramatically increased.
Ordinance or law coverage
Ordinance or law coverage is designed to address the additional costs of rebuilding your home to current building codes after a covered loss. If your home was built years ago, current building codes might require more expensive materials or extra features like fire sprinklers.
Without ordinance or law coverage, you would have to pay out of pocket for these extra costs. But with this coverage, insurance can help pay for bringing your house up to code.
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