Inflation – who needs it?
You just end up paying more dough for the same loot
When inflation is to our disadvantage, we feel it everywhere.
It hits our pocketbooks at the grocery store and gas pump, and we may not take as many vacations or have as many toys.
But there is one place where you don’t have to feel the ill effects of the rise and fall of inflation. That place is your insurance policy.
Did you know that your property limit can be adjusted to keep up with inflation so that you have enough coverage in case of a total loss?
There is a provision in both personal and commercial policies to adjust the building insurance limit based on a chosen percentage of the current year’s building value.
It is called an inflation guard.
Depending on your insurance company, you can use this to choose between 2% and 8% of the building limit.
The following example illustrates how the inflation guard works.
In year one, if you have a $100,000 building limit with a $1,000 deductible and the building is a total loss, you would pay the first thousand and the insurance carrier would give you a check for $99,000.
In year two, if you carry the same $100,000 limit and have the same $1,000 deductible and there has been a 4% spike in inflation, if your building is a total loss, you would pay your deductible and the carrier would still pay you $99,000.
You would make up the difference of any additional costs after that to replace your property.
However, if there was a 4% inflation guard on the policy, the building limit would automatically increase to $104,000 to account for the increased cost to replace your home or building.
In a total loss, you would pay your deductible and the insurance company would give you a check for $103,000.
Now that’s peace of mind.