Understanding Church Insurance: Property Coverage

Visual of individual looking through finances

There are basically two types of insurance: property and liability. While liability insurance covers the actions that could leave the church liable for damage to others, including injuries and damage to a person’s property or reputation, property coverage protects the things owned by your ministry such as your buildings and business personal property.

Cause of Loss – Special Form Coverage

Special Form Coverage protects against almost all risks of loss except those that are specifically excluded. It is common for policies to exclude floods and earthquakes. Read exclusions carefully.

How much insurance do I need?

Based on the needs of your church, coverage will fall into one of the following categories:

  • 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.
  • Coinsurance. 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.

Determining Values

Building coverage limits purchased by a church should be the cost to replace or rebuild the facilities with contract labor and new materials. 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. Your agent can help you calculate the replacement cost.

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.  That is why having an updated inventory list with values for each property item is important. Storing a copy of your inventory list and supporting pictures or video off site will enable you to access the inventory in the event that a major incident destroys your church records.

Additional Property Coverage
It is important to note that standard property insurance does not always cover every aspect of your property and/or belongings. In the event that you need coverage outside of your standard plan, there are additional plans that cover these special circumstances. Make sure to check with your insurance carrier to determine what additional property coverage your ministry might need to consider.

  • Inland marine covers business personal property that may be taken off site or used at multiple locations.
  • Business income replaces lost or reduced income that the church suffers due to damage to the property by a covered event.
  • Electronic Data Processing (EDP) coverage provides insurance for computer hardware and software, phone systems, video systems, and other high-dollar hardware used in ministry.
  • Water damage covers floods and sewer backup.
  • Crime coverage
    Money and securities coverage will cover theft, disappearance or destruction of tithes and offerings.
    Employee dishonesty/fidelity bond coverage protects the church if an employee steals from the church.
  • Limited law and ordinance enforcement extends coverage to three areas: the value of the undamaged portion of building that requires demolition, the expense attached to the demolition and removal of the undamaged portion, and the increased cost of construction that may arise from a more costly construction standard due to changes in laws and ordinances.
  • Pastor’s business or personal property covers the pastor’s personal property at the parsonage or rented dwelling.
  • Systems and equipment breakdown coverage extends coverage to include the explosion of a boiler or systems if they break down. Churches use this coverage to insure against breakdown replacement or repairs.
  • Builders risk/construction occupancy is a special policy that provides coverage for the new building and construction materials during construction.

CHOOSING AN AGENCY

It is important to place coverage with an insurance company that has a Best's Credit rating of A- or better. Also, place coverage with an agent that is knowledgeable about insuring churches. The General Council of the Assemblies of God has a customized insurance program for AG Churches. Church Mutual, an A+ rated company with over 100 years experience in insuring churches, underwrites this coverage.

Furthermore, developing a good relationship with your agent is critical. Openly discussing your needs and current situation with your agent will enable you to better prepare for future scenarios. Keep in mind that your insurance agent is in the best position to clarify coverage, help you understand terminology, and keep your ministries protected. They are your best ally should the unthinkable happen.

What is your experience with insurance?  Has an unexpected event either left you grateful you had insurance or wishing you did?  Share your story in the comments below.

Jerry Sparks, President
AG Financial Insurance Solutions
jsparks@agfinancialinsurance.org