What Does Automatic Increase in Insurance Endorsement Mean?
An automatic increase in insurance endorsement is an addition to a property insurance policy that renders coverage limits on buildings flexible to inflation rate. It takes into account the changes to the cost of construction so that there is an automatic change in the insured property's coverage whenever there is a change in the costs. This protects the insured from a loss due to inflation.
An automatic increase in insurance endorsement is also known as inflation guard provision, inflation endorsement, and automatic increase in insurance provision.
Insuranceopedia Explains Automatic Increase in Insurance Endorsement
Every so often, the cost of construction of a property changes. These may be due to changes in the prices of materials and labor, which are totaled in an indicator called the construction costs index (CCI). The CCI shows an almost linear increase in the costs of contractors, which is why the automatic increase in insurance endorsement may be added to insurance policies.
Because of the CCI, the insurance companies are able to monitor the changes pertinent to a property’s value. The insurance contract of a property then changes automatically. This addresses any issues in the changes of inflation.