Index-linked Buildings Insurance??

milliebear00001

Hi there

Have already posted on the insurances forum, and think I am clear what an index-linked policy is. However...my lender is specifying that I buy an index-linked insurance policy for the full term of the mortgage. I am guessing this isn't an unusual request, but all the policies I've looked at onlline, don't seem to state if they are index-linked. Does the 'full term of the mortgage' bit really mean I have to buy a 25 year policy? Or is it OK to buy a normal 12 month one as long as I keep renewing it every year?!
#
Sorry if these are daft questions - I am really struggling and ideally need to have this in place for Monday!

Catatonia

25 year policies don't exist, so you will be fine with an annual one.

G_M

'for the term of the policy' means you need to always have an insurance policy in place throughout the 25 years. You can buy an annual one and keep renewing it, or, indeed, after a year you can shop around and replace it with a different one. Provided there is always a policy in place.

Most policies will be index linked, but read the small print. And if you DO switch companies after a year (or 2 years whatever) remember to increase the sum insured appropriately. If the rebuilding cost today is £100K (ie if the house burnt down it would cost that to rebuild it) then obviously next year the rebuild cost will be higher (say £102K). If you stay with the same company, and the policy is index linked, this increase is automatic. If you switch, you need to increase it yourself.

There's info here on rebuilding values.

milliebear00001

So, if I am able to shop around year by year, surely an 'index-linked' policy is a misnomer? As long as I make sure I have an accurate rebuild figure each year when I renew, then why would it matter if 'last year's' policy was index linked?

My real problem is that I am struggling to find anywhere on any of the policies I've looked at, that actually says if they are index linked, and I really need to get the paperwork for first thing Monday (even if only online).

G_M

Some policies don't actually require you to provide a re-building cost - they provide blanket cover up to a limit, usually £500K or £1m eg see Direct line here. Index linking therefore becomes irrelevant.

A quick search gave this typical wording in More Than's policy document:


The sum insured shown on your schedule will be adjusted in line with a recognised index.

However, if we selected your sum insured for you, the sum insured shown on your schedule will
not be adjusted. No extra charge will be made for any increase until the renewal of the policy, when the renewal premium will be based on the adjusted sum insured and limits.

Index linking of the sum insured will continue during repair or replacement following loss or damage provided the
sum insured at the time of the loss or damage represents the full rebuilding cost and you ensure that the work is carried out without undue delay.

The lender's primary concern is that at any given point in the 25 year term you have sufficient insurance to rebuild the property. They normally provide you with an initial rebuild cost (from their surveyor's valuation survey) and expect you to increase this in line with the relevant index over time.