The various potential losses may be covered under different policies, each with its own terms. The terms should specify how losses are evaluated and covered under the policy. As another year begins, this is a good time to consider whether your policies allow for appropriate inflation adjustments. Will your coverage provide the resources you need if you were to sustain a loss?
As attorneys who focus on resolving complex insurance disputes, we’ve seen that policyholders’ expectations often don’t align with the terms of their policies. Of course, we’ve also assisted policyholders in many situations where the insurance company has declined to live up to its obligations under the policy. When a policyholder is mistaken, it can be difficult for us to help, but when the insurance company is wrong or acting in bad faith, our experienced legal team can get the results policyholders deserve. So it is important to understand the extent of coverage and whether it adequately accounts for inflation-driven cost increases.
Look at the Policy Language Rather than the Marketing Promises
The first part of the process of evaluating your policy’s adequacy is to make sure you’re looking at the actual policy. What the insurance company promises on their website or in a brochure may not be at all what is actually provided contractually in terms of your policy. So you need to review the policy in detail. This is not an easy task, even for attorneys accustomed to reading detailed contracts. Insurance companies use terms that often have a specific meaning in the industry and a different meaning to the general public.
Sometimes the meaning is defined in statutes or by legal precedent. Other times, the language carries a meaning understood within the industry or even unique to a particular company. If an insurance company is interpreting language in a way that runs contrary to legal expectations, it may be possible to successfully challenge their interpretation. But it is a good idea to understand the interpretation in advance, before any problems arise.
Inflation Adjustments Will Not Be Standard
Insurance companies operate to make money, so they are not going to volunteer to pay more without significant encouragement. Adding inflation protection to an insurance policy will generally be optional rather than a standard boilerplate part of coverage.
Different policies approach the issue in different ways. Coverage to cover higher costs due to inflation could be provided through a rider linked to an index or one that provides adjustments at set intervals. With certain types of policies, you may be eligible for a “coverage boost.”
Inflation Guard
Many insurers offer optional endorsements they refer to as an “inflation guard” or cost-of-living adjustment. This provision automatically increases coverage limits, but it may apply only to certain specific losses. For instance, in a homeowner’s policy, it might provide an automatic increase in coverage for the dwelling itself, but not for personal property within the home.
Adjustments can range from 2 to 8 percent, which is a wide range. Some provisions specify that the coverage increase will be adjusted according to a particular index, such as the Consumer Price Index.
DIY Inflation Protection
Automatic inflation provisions are not offered for every type of policy, and even when a provision is offered, it may not be the best option for your particular situation. The best protection might come from a commitment to review coverage and needs regularly and negotiate changes at the time of renewal. An increase in coverage is likely to raise premiums, but increases could be minimized or negated by changing other terms, such as accepting a higher deductible.
Reviewing Your Specific Needs
While reviewing the adequacy of your insurance coverage annually is time-consuming and not particularly enjoyable, it is a wise idea, particularly when insuring a business. You should plan to calculate potential losses and how their costs may have changed. Consider also the additional resources available to cover the costs or adjustments that could be made to offset a loss.
Estimating the potential for liability might perhaps be the most challenging aspect of this type of review. Tort reforms and other changes in the law might provide guidance and reduce potential losses.
While you are reviewing your coverage, this is a good time to ensure you understand its limitations. These may be spelled out in the policy, but sometimes the limitations are established by law. A coverage review could reveal areas where you are not adequately protected, but it could also show that you are paying for some types of coverage that you don’t need or at amounts that are higher than necessary.
When Insurance Companies Don’t Live Up to Their Promises, Remember That You Have Rights
Educating yourself on your coverage is a critical step that can help ensure that you receive the resources you need from your insurance policy after a loss. However, even if you do everything right, there’s no guarantee that the insurance company will pay the claim at the appropriate amount in a timely fashion.
That’s why we founded Ver Ploeg & Marino. Our experienced team is dedicated to protecting policyholders’ rights in all situations. We never represent insurance companies, but we have inside knowledge of their practices, which enables us to find the most effective solutions regardless of the type of policy or the source of the disagreement.
If you are disputing an issue with your insurance company, we invite you to contact us for a confidential consultation to discuss your options for resolution and recovery. We serve clients all over the U.S. from our offices in Miami and Philadelphia. You can reach us online or by phone at 305-577-3996.
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