By Society Insurance Team in 2021, reposted with permission from Society Insurance
In 2021, we’re seeing a unique economic environment. Supply chains have been affected by the pandemic and a few industries experienced weather-related setbacks. This, along with the new challenge of a labor shortage, is not allowing supply to keep up with demand, which leads to inflation.
Lumber is a relevant example and a commodity that has a significant impact on the cost of claims. The cost of claims in 2021 is significantly more than the cost of claims in recent years. This increase may subside quickly, however, economists believe inflation will persist.
What is Inflation Guard?
Inflation Guard is the automatic annual increase in property values on an insurance policy to keep up with rising costs of construction. It provides carriers with adequate premium to pay for losses and provides policyholders with protection against coinsurance penalties if a coinsurance requirement exists. Many insurance carriers apply an annual 4% Inflation Guard increase. If values don’t keep up with the pace of inflation, insurance premiums will eventually have to take a steeper spike upward.
What is Coinsurance?
Coinsurance language in a policy gives an insurance company the right to reduce the amount of a claim payment if the amount of insurance purchased was inadequate.
What Does This Mean for Policyholders & Insurance Agents?
Policyholders could be underinsured at the time of total loss and find themselves with significant out-of-pocket costs in order to return to normal operations. If a partial loss occurs and the carrier imposes a coinsurance or underinsured penalty, the policyholder would also experience out-of-pocket costs. If the above occurs, there may be errors and omissions lawsuits against the insurance agent.
Does Society Insurance Include Inflation Guard in Policies?
Society Insurance does include Inflation Guard and does not include coinsurance or underinsured penalties in their policies. This provides protection for both policyholders and agents from some of the challenges in managing property values. Maintaining adequate values on insurance policies is critical. Inflation Guard – and annual conversations between insurance agents and policyholders – can fend off trouble.
Contact Brian Fowler, WisMed Assure Account Director, at 608.442.3718 for a quote or with any questions.
Reposted with permission from Society Insurance
In order to make sure that your homeowner’s insurance policy stays up to date. Your policy should include an inflation guard endorsement. This endorsement automatically ensures that your policy stays current with the rising costs of material and labor due to inflation.