What is a Day One Uplift?

As a landlord, you need to take out specialist insurance that covers you for the additional risks that come with letting a property to tenants. If you only have a standard home insurance policy on a property that’s being let, it’s highly likely any subsequent claim would be rejected.

A landlord insurance policy should include:

• Buildings insurance – ensuring that if the fabric of the property is damaged or destroyed by things like storms, fire or flooding, you can claim up to the value of the sum insured. If you have a buy-to-let mortgage, your lender will require buildings insurance to be in place from exchange of contracts.
• Cover for damage caused by tenants – both accidental and deliberate.
• Cover for damage to contents, including furnishings.
• Liability cover – to protect you financially in case a tenant, visitor or contractor is injured in the property and makes a claim against you.
• Loss of rent or alternative accommodation cover, in case the property is uninhabitable following an insured event.
• Contingency cover for tenants’ non-disclosure - in case a tenant has withheld information that causes you material or legal problems if you make a claim.

When it comes to the buildings insurance element, it’s important to make sure that the “Sum Insured” is accurate – that’s the total amount your policy will pay out for the cost of completely rebuilding the property - so that if the worst happens, you are properly financially covered.

The challenge is that no matter how accurate the rebuild valuation at the point you take out an insurance policy, costs will rise over time due to inflation and other economic factors. As we’ve seen in recent years, something like a global pandemic can send costs spiralling even over just the course of 12 months because of supply chain problems. So, if you were to make a large claim on your insurance towards the end of the policy period, it’s possible that the cost of the works could be significantly higher than when you took out the insurance.

The impact of being underinsured

If you make a claim and your insurer decides that the property is underinsured – i.e. the total rebuild cost would exceed the level of insurance on which you’ve been paying your premiums - any payout for any claim is likely to be reduced proportionally to reflect the amount by which the whole property is underinsured.

For example, if the Sum Insured is £350,000 and at the point you submit a claim, the insurer calculates that the rebuild cost would actually be £400,000, they would deem you to be underinsured by 12.5%. In that case, if your claim was for £40,000, they might only pay out £35,000, leaving you to make up the shortfall yourself.

Day One Uplift

Day One Uplift (DOU) is a way of accounting for this.  It is an additional percentage that is applied to the Declared Value of the property on the day the insurance policy comes into effect. This percentage uplift should be sufficient to cover any inflation to the construction costs, including professional fees – both during the policy period and beyond, to the end of the rebuilding period. The Declared Value, plus the DOU, gives the total Sum Insured.

While DOU is more commonly used in relation to commercial properties, residential property insurance often applies Index Linking, which is a similar principle. Insurers use various indices, including the Consumer Price Index (CPI) and Retail Price Index (RPI) to calculate the difference between the total Sum Insured and the current rebuild value and automatically account for rising costs. Your premium is then adjusted when the policy comes up for renewal.

Is DOU / Index Linking automatic, or does it cost extra?

Most insurers will not charge any additional premium, but it is important to check that your policy has one or the other, to protect you against the property being underinsured.

Be aware that for the DOU to provide a robust financial safety net, the Declared Value of the property must be at the correct level on the policy start date. The best way to get an accurate rebuild cost is to have an Insurance Reinstatement Survey carried out by a RICS registered surveyor. Or, if you are simply looking to update a recent valuation to make sure it remains current, the Association of British Insurers has a useful online calculator.

If you have any questions about DOU or Index Linking, or to discuss your landlord insurance needs, contact our team of experts either via our online form, or by calling 01903 890044.

And if you are a current landlord with any of the agencies in LRG, an insurance quote is ready and waiting for you in your online landlord account. No fuss or forms to fill out!

Bode Insurance Solutions Limited is registered in England (Company no 03101637) Registered Address: Crowthorne House, Nine Mile Ride, Wokingham, Berkshire RG40 3GZ.
Bode Insurance Solutions Limited is authorised and regulated by the Financial Conduct Authority (FCA) under firm reference 313541.
You may check this on the Financial Services Register by visiting the FCA’s website https://register.fca.org.uk or by contacting the FCA on 0800 111 6768