Definition - What does Inflation Coverage mean?
Inflation coverage is a legally binding codicil in a mortgage insurance clause that raises the value of the coverage in line with inflation to ensure that the same proportion of coverage value would be active. If an insurer was found not to have increased this coverage and something happened to the property, such as a fire, then the insurer would be obliged to increase the payout in line with inflation unless the coverage was specifically not chosen.
Justipedia explains Inflation Coverage
Inflation coverage is based on market rates, so there may be a time period before the new rates come out each year where the value may be under-assessed.