How Inflation Guard Protects You From Rising Repair and Construction Costs

Feb 10, 2023 1 min read

With current inflation and a hot real estate market, you may want to check that inflation guard coverage is added to your homeowners insurance policy to protect you from the rising costs of repairs and construction. Whether you have renovation plans or not, without proper homeowners insurance and inflation guard, you can end up underinsured.

What Is Inflation Guard for Homeowners Insurance?

In most cases your insurance provider will adjust your coverage needs at your annual policy renewal. This is when they may adjust your coverage limits to keep pace with the rate of inflation. Typically, inflation adjustments are 2-4% annually but may be even more than that during periods of high inflation. 

The Cost of Home Construction

One impact of inflation is the increased amount it would take to build your home in today’s dollars. Factors like material costs and labor come top of mind. With inflation guard in place, it would alleviate these costs.

According to the U.S. Bureau of Labor Statistics, January’s inflation rate rose 7.5% year-over-year, roughly 3.5 percentage points higher than average. Although inflation affects each line of work differently, if a $200,000 home burned down and was 3.5% underinsured, the homeowners would owe an additional $7,000 if they built the same home with funds from the insurance payout.

What Does an Inflation Guard Cover?

A homeowners insurance policy typically includes the following coverage types. 

  1. Dwellings
  2. Contents
  3. Other structures
  4. Additional living expenses

Inflation guard can be provided to one or more of the above coverages, so it’s important to clarify with your agent if things like your work shed and other possessions are also adjusted with the rate of inflation.

Other Protection from Extra Costs

Consider asking about replacement cost coverage when you meet with your insurance agent. This is an additional measure you can take to properly cover your assets and possessions. 

Accurate Coverage for your Home

Choosing which coverages to add or forgo to your homeowners policy can be overwhelming. You want your home protected, so do we. Connect with a Farm Bureau agent to take the guesswork out of reviewing your homeowners insurance

Want to learn more?

Contact a local FBFS agent or advisor for answers personalized to you.