Day 1 Reinstatement is a clause applied to Property Damage insurance to deal with the effects of inflation during the period of the policy and the period of reinstatement.
A sum insured on a reinstatement basis should be adequate to replace the insured property with ‘new’ at the time of reinstatement, which could be some months or years after the sum insured was set. Therefore, there is an element of guesswork when selecting sums insured as an allowance needs to be made for the effects of unknown future inflation.
What are the advantages of Day 1 Reinstatement?
With Day 1 Reinstatement, the insured provides the value of the property on a reinstatement basis on the first day of insurance (known as the ‘Declared Value’) and the insurer agrees to increase their limit of liability by an agreed percentage (known as ‘Uplift’). The standard uplift offered is typically 15% or more, and would generally be considered sufficient to cater for the effects of inflation, but specific uplifts can be provided if the standard offered is insufficient.
What are the disadvantages of Day 1 Reinstatement?
The major downside of Day 1 Reinstatement is that 100% Average applies, meaning that the Declared Value must be 100% accurate otherwise insurers can apply Average and reduce a claim by the proportionate amount of any under-insurance. Standard Reinstatement cover has an 85% Average condition, meaning Average cannot apply if the sum insured is within 85% of the reinstatement value.