What is inflation coverage?

The Reality About Inflation Coverage – One of Things Homeowner's Insurance Companies

Buying a home is a significant financial step in anybody's life. We all want safe enough protection to cover our investment. Usually, our insurance agent or other insurance company representative would inspect our home and decide the amount of coverage required to protect our investment. Usually, it is based on estimating how much it will cost to replace our home in a complete loss. It is in our best interest to let the insurance provider know if we add or do something to raise our home's value (and depreciation cost) to cover the increase.

But what about replacement cost rises due to inflation instead of any additions we make at home? For example, if we get $100,000 of coverage because that's what it would cost to repair our home in today's market; what if our house burns down a year from now and because of inflation in labor and material costs, it would cost us $120,000 to rebuild the same home? What if the insurance provider takes six months to settle our claim and the rebuilding expense is already $130,000 due to inflation?

What's "inflation coverage" or "inflation coverage?"

Many homeowner insurance plans provide something called "inflation coverage" or "inflation protection," which is intended to cover these inflation-related cost rises. We may not know it, but part of our subscription payments for the extra coverage. (We should all consult with our agents to ensure our policies cover inflation).

The trick and what Homeowner's Insurance Firms don't want us to know is how to measure inflation coverage. Many initiatives have a statistical method to assess how much inflation raises coverage. But most policies don't tell us exactly where the numbers in those calculations come from. For example, many policies state that the amount of inflation coverage would be calculated by dividing the policy's "inflation factor" into the "inflation factor" on a "date given." However, in most situations, the insurance company/police don't tell us what the cause of the new "inflation factor" or what is implied by a "date given is."

This lack of knowledge allows insurance providers to choose numbers to restrict the amount of inflation coverage offered. For example, if inflation on the loss date is lower than when they end up paying the claim, the insurance provider might say "given date" means the loss date – and vice versa. Suppose the policy specifies no source for the inflation factor. In that case, the insurance provider will pick and choose inflation rates from various private and government sources to find the lowest possible inflation rate to maximize our coverage. In certain situations, the insurance provider might not value our inflation coverage as it is not known to many insureds. The result—our insurance provider will pay us less than it owes.

How do we know if we get the full advantage of our inflation coverage?

Typically, when an insurance provider covers a total loss under a homeowner's policy, they don't provide a detailed description of whether and how the rise in inflation compensation was measured. So, even if an insurance provider pays for a "total loss" and pays the full amount of payment on the policy when you bought it, they can not pay the maximum amount they owe on the claim.

If you've experienced a complete loss of your home and received a "total loss" payout from an insurance provider, it's essential to make sure you've received all the compensation you paid. If you're not sure you've earned complete coverage, contact an experienced home insurance lawyer today. Our dedicated legal team has the skills and expertise to negotiate with insurance firms seeking to stop paying their policyholders anything. Occasionally, our involvement will help you settle a claim without having to file a complaint against the insurance provider or even pay any fees. If legal action is required, we're willing and able to bring your claim to court.