Have you heard of index linking yet? At the risk of it becoming another term that people hear but don’t understand – we’re here to explain it as simply as we can. When you insure your home, you need to consider two things.
- The rebuild value – How much it would cost to build your property back from the ground up to how it was before, following something like a fire.
- The sum insured – This figure is designed to cover inflation during the insurance year and needs to be considered on top of the rebuild value.
To calculate the difference between these two things, the insurance industry uses something called index linking. This is used to ensure that a property doesn’t become underinsured. This can be applied to both buildings and contents insurance.
When a policy is index linked, the rebuild value will increase automatically when the cost of raw material, labour and professional service fees rise due to inflation. It is not linked to the rate of inflation per se, it’s linked to the effect that inflation has on the different factors used to rebuild a home. This saves you time re-valuing your property annually.
Is index linking used on all buildings and contents policies?
Index linking is optional, which means that if you don’t ask for it, you probably won’t get it. You can choose to cancel index linking at any time but this will mean that you need to manually review your policy to ensure you still have the right cover in place.
How do I calculate the rebuild cost of my policy?
For index linking to work properly, the rebuild value must be correct at the start of the policy. If you’re unsure about the rebuild value of your property, we can help you get this right with a Rebuild Cost Assessment.