(July 2020)
This endorsement automatically increases the homeowner
policy’s Section I insurance limits according to an annual percentage selected
by the insured. The increased protection is meant to compensate for the effects
of inflation by maintaining limits of insurance that reflect increasing
construction (material and labor) costs.
An insured may select among several percentage increase
options. All of them help the insurance coverage keep pace with rebuilding
costs and may be selected to reflect area conditions and trends.
This Inflation Guard Endorsement‘s Schedule includes space
to display the selected amount of annual increase in the Section I insurance
limits. At the option of the insured, a homeowners policy (does not apply to HO
00 04–Contents Broad Form, or the HO 00 06–Condominium Unit-Owners Form) may be
endorsed to automatically increase the limits of Coverages A, B, C and D. The
increase is prorated during the term of the policy.
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Example: Jay
and Hannah Blank buy homeowners insurance on January 2. The Coverage A
insurance limit is $150,000. The Blanks, conservative by nature, also
purchase a HO 04 46, selecting a 4% increase. On September 28, the Blanks’
home is flattened during a storm’s initial straight-line winds. When the
Blanks’ insurance adjuster gives them a check to cover the total loss, Hannah
asks why it was for more that the $150,000 shown on their policy. The
friendly adjuster reminds them of the HO 04 46 and that he used the following
calculation to determine their coverage: Coverage A Ins. Limit X prorated inflation guard
percentage = Amount of Settlement $150,000 X (.75 [9 months of coverage] x .04) = $150,000 X 1.03 = $154,5000 |
This optional coverage is subject to additional annual
charges applied to the base premium as follows:
·
1.02 for a 4% amount of annual increase.
·
1.03 for a 6% increase.
·
1.04 for an 8% increase.
For each additional 4% increase over 8%, .02 is added to the
1.04 factor. In other words, if the Blanks wanted a 12% inflation guard
percentage, the premium factor would be 1.04 (8% factor) plus .02 or 1.06.
NOTE: These
factors may differ by company, so check with the applicable carrier for
availability and for rating.