What is inflation guard coverage?

Inflation guard coverage automatically increases the coverage limit on your home to keep up with inflation.

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Kara McGinleyKara McGinleySenior Editor & Licensed Home Insurance ExpertKara McGinley is a former senior editor and licensed home insurance expert at Policygenius, where she specialized in homeowners and renters insurance. As a journalist and as an insurance expert, her work and insights have been featured in Forbes Advisor, Kiplinger, Lifehacker, MSN, WRAL.com, and elsewhere.

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Your homeowners insurance coverage amounts are based on your home’s replacement cost, or the cost to rebuild it from the ground up with materials of similar type and quality. But these costs generally increase from year to year due to inflation, potentially leaving you underinsured if your policy amounts aren’t updated to reflect that.

For this reason, insurance companies include inflation guard coverage that automatically increases your policy’s dwelling coverage limit to account for rising construction costs. If you noticed your insurance premium went up at your annual policy review, it may be because of your policy’s inflation protection.

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Home insurance premiums rising faster than inflation in some states

Home insurance premiums are rising faster than inflation in many states throughout the U.S., according to our July 2022 analysis of internal policyholder data.

From May 2021 to May 2022, 90% of homeowners saw their quoted annual premium increase compared to the previous year. And in Arkansas, Washington, and Colorado, homeowners saw their rates increase over 17% — more than double the rate of inflation — making inflation guard coverage even more important to add to your home insurance policy.

Find out how much premiums increased in your state by reading our full 2022 Home Insurance Pricing Report.

What is an inflation guard coverage endorsement?

Inflation guard coverage is a home insurance coverage endorsement that automatically increases your policy’s dwelling coverage limit to reflect the current construction and labor costs in your area. 

Coverage is calculated per day, and increases your dwelling coverage — as well as your insurance premium —  at your annual policy renewal. If your home is damaged in the middle of your policy term, your inflation guard coverage is calculated on a prorated basis. 

This coverage is usually built into standard homeowners insurance, but it’s possible you’ll need to add it as a separate endorsement to your policy.

Inflation guard coverage example

Say your home is insured for $100,000 and your inflation guard coverage is set at 8%. Now say you suffer a total loss of your home 90 days into your year-long policy term. Your dwelling coverage limit will be upped to reflect an 8% daily inflation rate, so your coverage limit would now be around $101,973, instead of $100,000. 

Does inflation guard coverage increase the cost of homeowners insurance?

Yes, but only by a small percentage. With inflation guard coverage, your dwelling coverage limit will increase according to the rising costs of building materials and labor in your area — typically from 4% to 8% — but your home insurance premiums will only go up by 2% to 4%

Who needs inflation guard coverage? 

Inflation guard coverage is a worthwhile coverage add-on for any homeowner. If you plan on owning your home for an extended period of time inflation guard coverage is a good idea, since prices can go up over the years. 

If you don’t have inflation guard coverage and need to file a claim, you could end up having to foot some expenses out of pocket if the cost of construction materials went up since you initially purchased your policy. 

More ways to protect your home from extra costs

Here are three other coverage options that could protect you from increased rebuilding costs. 

  • Ordinance or law coverage: Optional coverage that can help pay for the costs to build your home back up to code after a covered loss or if your home is older and isn’t up to code. 

  • Extended replacement cost coverage: Extends your replacement cost coverage anywhere from 25% to 50% past your coverage limit in the event rebuild costs surge, like after a natural disaster. 

  • Guaranteed replacement cost coverage: Pays to rebuild your home from the ground up even if the costs exceed your dwelling coverage limit.