There are two main methods used by Insurers to protect policyholders from the effect of inflation during the period of cover – Index Linking and Day 1

Index Linking

Index Linking is the preferred option for Residential properties. Inflation protection without percentage limit is provided during the period of insurance, and then consolidated at next renewal.

Day 1

Generally, this clause is used in policies covering commercial properties.

The rebuilding cost of the property is stated as the Declared Value and a percentage maximum uplift is chosen to cover expected inflation.

For example, if a property has rebuilding cost of £1m and a 25% Day 1 clause applies, the Sum Insured becomes £1.25m. However, the maximum payable at the time of claim is £1m + the inflation % to the date of damage.

Confusion may arise over the different usage of the term “Sum Insured”. On an Index Linked basis it represents the rebuilding cost but on a Day 1 basis it is the rebuilding cost plus the maximum rate of inflation shown in the Day 1 clause.

The Residentsline policy that flat-living.co.uk recommends underwritten by Norwich Union incorporates a further protection, being:-

85% Condition of Average

It is well known that if a property is insured for, say, 75% of its rebuilding cost, then the claim payment will be 75% of the loss.

The above clause is included to help avoid Insured’ being penalised for inadvertently under insuring. As long as the Sum Insured declared is within 85% of the true re building cost at policy inception or renewal and the shortfall is inadvertent, the policyholder will not be penalised at the time of a claim.

For more information contact Residentsline on 0800 281235 or, for a quotation for your building insurance please complete the form on the ResidentsLine web site at:
www.residentsline.co.uk/buildings_insurance.htm or send us an email at info@flat-living.co.uk and we will arrange for a Property Insurance Underwriter from ResidentsLine to contact you directly

www.flat-living.co.uk is an Introducer Appointed Representative for Residentsline Ltd which is authorised and regulated by the Financial Services Authority