Does Home Insurance Increase Every Year? 
Home Insurance is a generic term for either Homeowners Insurance -LRB- Owner Occupied -RRB- or Dwelling Fire Insurance -LRB- Tenant Occupied Landlords Policy -RRB- . The primary purpose of a home insurance policy is to pay for the reconstruction of the home in the event of a fire ; in addition to this primary purpose , there are many additional items which are covered against a number of perils listed on the policy form . In order to maintain sufficient coverage to rebuild the home in the event of a total loss , most policies include an inflation guard endorsement ; the main purpose of this endorsement is to increase the coverage slightly each year to keep up with the annual adjustment of building costs inclusive of materials and labor . It is important for a home not to be underinsured ; policies have a built in coinsurance clause which could cause financial hardship to a homeowner in the event there is a large loss and the home is found not to be sufficiently insured ; the coinsurance clause would only provide coverage on a percentage basis equal to the same percentage of insurance purchased against the actual replacement -LRB- reconstruction -RRB- cost of the dwelling . Some companies will allow the inflation guard to be removed by the insured -LRB- by signed request -RRB- ; however , the prior paragraph may explain why this is not the best option for a homeowner . Although the endorsement has no monetary charge -LRB- premium -RRB- , removing it may heavily impact the policy if a loss were to occur in future years . The inflation guard endorsement may increase coverage amounts by 2 - 5 % based on the current year 's costs of construction and an equally small increase in the annual insurance premium ; however , it is commonly to the homeowners ' surprise that insurance premium is adjusted each year by all carriers based on the prior year 's loss experience to the carrier for the aggregate rating zone -LRB- all homes in the area -RRB- . We receive calls each and every year requesting to remove the inflation guard blaming the endorsement for an increase in annual premium ; many times , carriers may have a 5 % increase in a given area and a 2.5 % increase in coverage limits . Insurance carriers are heavily regulated by the Department of Insurance in each State ; they are also carefully audited by rating agencies most commonly by A.M. Best Company who issues Insurance Company Ratings . It is important for insurance companies to offer excellent customer service , excellent and expedient claims service and pay the full replacement value of all claims presented that are covered by the subject policy ; over and above this , the carrier must maintain financial reserves in order to hold their secure position to handle future losses and offer the security that customers expect from an insurance company . If for example , a Homeowners insurance Premium is $ 500 per year , one could imagine that there is n't much profit to be made after the aforementioned responsibilities and performance guarantees . On extraordinary years where insurance companies post great gains , the auditors and Department of Insurance would require a rate reduction since the profit percentages of the carrier are limited and closely regulated by the Government . Although it is n't common , following many years in the property insurance market , we have seen reductions in annual premium following profitable years . The operation of an insurance carrier is n't as simple as issuing a policy and collecting a small premium ; there is so much more to the contract and operation . For those interested , it is worth contacting a Licensed Representative of your present insurance carrier and inquiring to gain a better understanding . 