Inflation protection. What is the difference bewteen Index Linking and Day 1 cover?
The Association of Residential Managing Agents
Residents Line Insurance for Flats
LEASE: The Leasehold Advisory Service
FPRA: The Federation of Private Residents' Associations
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
DISCLAIMER
Any external products and services listed do not necessarily carry the endorsement of retirement-flat-living or imply a recommendation. retirement-flat-living.co.uk does not recommend any of the advertisers and cannot be held responsible for any work undertaken by or purchased from any advertiser on this site.
Whilst retirement-flat-living makes every effort to ensure that the articles included in the web site are accurate at the time of publication it is inevitable that, as time goes by and circumstances change, the articles may contain out of date information. Readers are strongly urged to check the content of these articles before taking any action that could have legal or financial consequences. retirement-flat-living shall not be liable for any loss, damage or inconvenience arising from inaccuracies.