Inflation Factor

What Does Inflation Factor Mean?

The inflation factor is the portion of the premium that accounts for potential inflation, which may affect the cost of the products and services covered by the policy. The insured may also choose to include separate inflation protection as an additional feature of their insurance.

Insuranceopedia Explains Inflation Factor

Prices generally rise over time, including for items commonly covered by insurance, such as medical and property coverage. The cost of medicines and building materials, for example, may increase beyond the levels at the time the insurance was first purchased. Insurers account for this inflation in their premium pricing. It’s part of why the average cost of homeowners insurance can shift from year to year, even when nothing about the home itself has changed.

Those who are concerned about being underinsured due to inflation can request additional coverage by purchasing an inflation protection feature. This feature adds a percentage to the insurance limit over the years to help keep up with rising costs. Working out how much homeowners insurance you actually need in the first place makes it easier to judge whether the added cost of inflation protection is worth it for your situation.