Simply put, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.
Insurance is not an exception. When it comes to annual contract renewal time, short-term insurance policyholders will often receive a notification from their insurance company of a premium increase. The increased sum insured will be formally reflected in your Schedule, and your premiums will be adjusted accordingly.
Inflationary increases on sums insured, such as your home, its contents and all risks (the belongings the policyholder carries with them outside of the home e.g. a mobile phone or laptop) is not technically a premium increase. “The cover for these belongings is heavily influenced by the Consumer Price Index (CPI) and the reason why insurers have to increase the sum insured (the value of the cover) is that these items will cost more to replace or repair a year later due to inflation.”
You might think that property insurance premiums or property limits should never go up – especially if you did not have a loss. This is a misconception. The truth is that the cost of underlying components, which make up the insurance property limit, continue to increase, it is a financial law of gravity. Renewing a policy “as is” year after year could prove to be detrimental to your coverage and leave you grossly underinsured. Real property and contents need to be adjusted annually for inflation, and policyholders and agents need to be aware of this.
The appropriate valuation of your property and its contents is critical to the strength of your policy. Upon renewal, spend a bit of time evaluating your coverage. In the event of a loss, you’ll be glad you did. It remains your responsibility to ensure that you are always adequately insured.
Article courtesy of Suretimes.
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