The Essentials of Church Insurance

The Essentials of Church Insurance

The members, facilities, and assets are
essential components of your ministry.

As a result, they must be adequately protected.
Though not a substitute for good risk management
or safety and security planning, insurance is
a valuable tool. Church leadership needs to
understand the different aspects of insurance.
There are basically two types of insurance: property
and liability. Property covers the things you own,
while liability covers the actions that could leave
the church liable for damage to others (injuries,
property, or reputation). Insurance companies
cover automobiles under a separate policy due to a
variance of the laws from state to state.

The Essentials of Church Insurance

Property Coverage
Property coverage provides protection for
your buildings and business personal property.
Insurance companies cover automobiles under a
business auto policy.

Cause of loss.
Recommended coverage form:
Special form. This covers almost all risks of loss
except those that are specifically excluded. Most
policies normally exclude floods and earthquakes.
Read exclusions carefully. If you are located in
a coastal area or Florida, you will want to make
sure your policy has windstorm and hail coverage.
This coverage will normally have a percentage
deductible much higher than your normal
property deductible. Also, if you are located in an
earthquake fault area, like California, you will want
to look at purchasing earthquake coverage.

How Much?
The most frequently asked question agents
receive from church leaders is: How much
insurance do I need? The answer depends on
the needs of the church.

Replacement cost.

This is the option most
churches will want to secure. This will provide
enough coverage to rebuild the facilities or replace
business personal property with new property of
the same kind that was lost.
Actual cash value (ACV). Churches might
choose ACV if their facilities are in disrepair or
the church would never rebuild that building
type. Agents determine the value by taking the
amount to replace the building or contents less the
accumulated depreciation.


This is the specific percentage of
insurance to the value of the property insured.
For instance, most companies require that a
coinsurance rate of 80 or 90 percent of the
property value be in place at the time of a loss.
If the property was worth $100,000 and the
coinsurance requirement is 80 percent, there would
need to be at least $80,000 of coverage limits
available to pay the claim without a penalty. Many
companies offer lower rates for customers who
keep a higher percentage coinsurance in place.
Coinsurance helps provide adequate coverage and
reduces disputes at the time of a loss.

Determine Building Values

The coverage limits purchased by a church should
be the cost to replace or rebuild the facilities with
contract labor and new materials. While the church
may have less money invested in the building, it
cannot count on volunteer labor and donations to
get the facilities replaced quickly.

Building costs have increased significantly in the
past few years and, ultimately, it is the insured’s
responsibility to make sure it has adequate limits to
replace the building and its contents. When figuring
the value of the building, include everything that
is permanently attached. Pews, video projectors,
sound systems, and appliances that are anchored
to the building are factored into the building value.
Chairs and portable equipment are business
personal property or contents.

Do not assume that the amount you paid for the
church or the amount of the loan is the correct
value. Not having a sufficient amount of insurance
to rebuild a church is the number 1 issue with
claims. Therefore, ask your agent to calculate the
replacement cost. He will normally have software,
such as Marshall Swift, to do this appraisal. If you
are purchasing your building, it is common practice
for the appraisal to have a replacement cost value
as well as the market value.

Business personal property includes all items that
are not part of the building. Because churches
tend to add these items over time, they may not
have adequate insurance coverage on these
items. Consequently, coverage may not be
adequate when a loss occurs, making it difficult or
impossible to replace what the church owned.


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