Policy schedules often show two values on the buildings: one referred to as the declared value and one as the sum insured. The important difference between these two is how the policy protects you against inflation in rebuilding costs. When you calculate the declared value, it is the same as calculating the sum insured except that you do not need to add anything for possible inflation which may occur during the policy period or during the time taken to repair/rebuild following a claim. The policy then includes an allowance (typically adding a maximum of 50%) for inflation during the year and, more importantly, during the rebuilding period, which, in the event of a serious loss, could be a number of years. The insurers will then pay the maximum of the declared value, plus the amount by which inflation has increased the declared value stated at the start of the policy period the added allowance protecting you from inflation, without you paying more premium. Declared value is often referred to as ‘day-one value’. We always recommend you arrange cover on a ‘day-one declared value’ basis.

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