In these financially challenging times, with the cost of living rising on a daily basis, landlords should be thinking seriously of index linking their insurance as a way to ensure that their valuable property assets are fully protected from any eventuality.
As labour and material costs will inevitably continue to rise, this article has been written in order to answer some commonly asked questions about index linking.
While index linking is generally included with domestic home insurance policies, this may not always be the case with landlords insurance, so it it up to the policy holder to ensure the sum insured is sufficient to cover all possible rebuilding costs.
What exactly is index linking?
Index linking is a mechanism by which insurance providers seek to ensure that the sum insured in a policy is sufficient to fully cover the cost of repairing or rebuilding a damaged property. As the projected costs of building materials and labour continue to rise, it is vital that the sum insured for the property will also increase proportionally to mitigate these costs.
Landlord Insurance policies can offer index linking with a monthly review and appropriate readjustment to the sum insured to reflect the ever-changing costs relating to rebuilding work.
What does the ‘sum insured’ mean?
The sum insured is the amount an insurer has agreed to pay to the policyholder to facilitate the rebuilding of a property which has been damaged due to one of a number of insured events, such as fire, flooding, or storm damage.
In a case of underinsurance, when the sum insured fails to meet the required cost of rebuilding, the landlord would have to meet the extra expense himself. To prevent this undesirable situation, it is in the Landlord’s best interests, to ensure that the sum insured is adequate to cover the property’s rebuild value.
What is the rebuild value?
It must be noted that a property’s rebuild value is not the same as the property’s market value. The rebuild value is a reflection of the total costs necessary to rebuild the property. The rebuild value takes into consideration all associated rebuilding costs.
That would include all the required materials involved, labour costs, and any extra expenditure deemed necessary to accommodate changes in building regulations, such as improved energy efficiency regulations, since the buildings original construction. It should be borne in mind that, in some cases, the cost of rebuilding may turn out to be more that the property’s market value at the time of rebuilding.
How does it actually work?
When an insurance policy is index linked, the insured amount is routinely adjusted in line with the current cost of rebuilding the property. This would include a full consideration of all the associated costs, from obtaining raw materials, bricks, timber, insulation etc, the rising demands of trades people, all the way down to the demolition and disposal of waste from the original building, and any groundworks deemed necessary prior to a complete rebuild.
How does index linking benefit the landlord?
The benefit of index linking for the landlord, is having the peace of mind that comes from knowing that no matter what happens, there will always be sufficient funds on hand to repair or fully rebuild their valuable property assets if and when that becomes necessary.
Who provides the data for index linking?
Many insurers base their valuations on data provided by the BCIS House Rebuilding Cost Index is. Architects, surveyors, owners, and insurers rely on the guidance fit provides for the assessing the changing costs relating to rebuilding and repairing properties.
Comprehensive cover that includes index linking
Comprehensive Landlord Insurance provides insurance policies with index linking included as standard. It indexes the building sum insured each month, based on the latest information from BICS, so that landlords can have the peace of mind knowing that all their rebuilding costs are well and truly covered.