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by Indiana Farm Bureau Insurance

What is the impact of inflation on my insurance?

Family of four walking into their new house with cardboard boxes full of their things

The economic impact of COVID-19 affected industries from hospitality to travel. It also affected inflation rates. According to the U.S. Bureau of Labor Statistics, the U.S. economy suffered from “sectoral inflation,” which means a “rise in prices occurring in different commercial sectors of a country.” For example, the transportation industry (i.e., new vehicles, motor fuels, used cars and trucks) was greatly impacted. The building industry was also affected, which in turns affects the insurance industry.

What is inflation and what is its impact on the insurance industry?  


Inflation is a general rise in the price level of an economy. It reflects a reduction in the purchasing power per unit of money. Insurance is affected by inflation levels through the property it insures, particularly your home. 


What caused inflation in 2021? 


The COVID-19 pandemic has had a devastating impact on our world. In the U.S., industries such as travel, hospitality and auto manufacturing experienced widespread economic challenges. The building industry was also particularly affected.  

In Indiana, between August 2020 and August 2021, the statewide average inflation rate on building materials and labor costs was 18%.  

Due to the economic impact of COVID-19 on the building industry, it is more important than ever that you have the right amount of coverage on your home. Your homeowners policy Coverage A protects the structure of your home; it covers the cost to repair or rebuild your home at current construction costs. 

What is the difference between insurance to value and market value? 

Insurance to value represents how your home’s coverage amount compares to the cost of rebuilding it. Knowing your home’s insurance to value helps you determine whether your home has adequate insurance coverage.   

Market value is different. This is the estimated price for which a property is likely to sell. Market value includes the value of land, improvements and market premium or discount based on supply and demand. Market value is also influenced by factors such as proximity to good schools, crime statistics and home availability. 

How does inflation affect my insurance coverage?  

Construction costs are constantly changing over time with inflation. Insuring a home at market value could leave you at risk of overinsurance or underinsurance but adjusting an estimate of the cost to rebuild your home for inflation is the best way to ensure you're properly covered in the event of a loss.



Aside from inflation, what can cause a need to review Coverage A values? 

There are many reasons that your cost to rebuild could increase: 

  • Adding square footage to a home 

  • Significantly altering the floor plan of a home 

  • Renovations to home systems 

  • Remodels of kitchens and baths 

  • Finishing basements or attics 

  • Adding decks, patios or porches 

  • Upgrading interior/exterior finishes 

What is inflation guard? 

Many homeowners policies include inflation guard, a provision that adjusts your Coverage A limit each policy term to reflect the gradual increase in the cost to repair or rebuild a home. This is in place to help protect against rising inflation by ensuring you have adequate coverage and your home is insured to value.

Does my insurance premium rise with inflation?  


Ensuring clients have the right amount of coverage on their home has always been a priority for Indiana Farm Bureau Insurance, so that you have adequate protection in case of a loss.  

The current rate of inflation requires that we increase Coverage A values to guard against underinsurance. Because of this, many will see a higher-than-normal increase in their homeowners premium. This coverage increase will help you assure that, in the event of a loss, the limits on your policy more adequately reflect the expected costs to repair or rebuild your home. 

What can I do to protect my family? 

You have the ultimate decision in choosing your limits for coverages, such as those for dwelling or personal property; we want to help you with that decision to be sure your coverage keeps up with the increasing cost to repair, replace or rebuild the home.  

To make sure you have the appropriate coverage, talk to an agent about your homeowners policy. You can find an Indiana Farm Bureau Insurance agent in all 92 counties, and they are willing to help you understand what you have and what you need based on the replacement cost of your home. 

As a consumer, you may want to see if a recent evaluation of the replacement cost of your home has been done. You may request that this be updated. Based on what you learn, choose a limit that provides peace of mind and can help you protect against catastrophic loss. 

*The information in this article was compiled from a variety of sources and is intended to provide helpful tips only.