Index Clause (Value Adjustment)
The index clause automatically adjusts the sum insured and premium in line with an agreed index (such as a construction cost or consumer price index), keeping cover in step with general price movements.
- Clause type
- Condition
- Origin/Market
- DACH – statutory
- Favours
- Neutral
- Negotiability
- Market standard
Purpose
Without regular adjustment, a fixed sum insured loses coverage value over the life of a contract as inflation and replacement costs rise, which can lead to creeping underinsurance. The index clause automatically ties the sum insured and premium to an agreed price index, so both change annually in the same proportion as the index, without a separate contract amendment being required.
Effect and limits
The adjustment is usually made at the start of each policy period based on an officially published index, often a construction cost or consumer price index depending on the type of property insured. The clause does not substitute for a fundamental revaluation of the property; structural alterations or increases in value beyond general price movements must still be notified separately, since the index reflects only general inflation, not individual value increases.
Negotiation and practice
Policyholders generally have a right to object to an index adjustment within a set period, though an objection often revives application of the average clause in the event of underinsurance. In industrial property insurance, the index clause is usually combined with index-linked replacement value cover to capture both general price movements and property-specific increases in value.