There are two main lines of insurance – one is Property and the other Liability. Within each of these categories of coverage are various terms that can be confusing, so we wanted to provide a quick tutorial so that you might be better informed and assist you in better protecting your ministry.
The definitions in this glossary are only a sampling of some of the coverages often noted and are not full legal definitions. They are intended to give lay people a quick idea of the meaning.
Property
| Cause Of Loss | Basic or Named Peril will cover only for the items listed. Those usually include fire, lightning, explosion, windstorm, smoke, aircraft and vehicles, riot, vandalism, sprinkler leakage, sinkhole collapse, volcanic action.
Broad Form adds the following additional causes of loss: falling objects, weight of snow, ice or sleet, water from sudden accidental discharge of water or steam system. Special Form covers everything except what is excluded and is the generally preferred policy form. |
| Type Of Coverage | Replacement cost will be the option most churches will want to secure. This will provide enough coverage to rebuild the facilities or replace business personal property (contents) with brand new of the same kind that was lost.
Actual Cash Value (ACV) might be chosen if the facilities are in great disrepair or the church would never rebuild that building type. The value is determined by taking the amount to replace the building or contents less a deduction for depreciation – generally based on age. |
| Co-Insurance | Coinsurance is the specific percentage of insurance to the value of the property insured. For example, most companies require that a coinsurance rate of 80% or 90% 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% there would need to be at least $80,000 of coverage limits available to pay the claim without a penalty. |
| Blanket Basis | Blanket combines the buildings and contents into one insured value and Agreed Value removes any potential co-insurance penalties. |
| Agreed Value |
This coverage suspends the coinsurance clause in your policy. That is, if you purchased agreed value coverage, your insurer will not consider coinsurance when calculating your payment for a loss. You and your insurer “agree” that the insured value in the policy is adequate for replacement coverage. |
| Business Income/Extra Expense |
Business income replaces the lost or reduced income the church incurs due to damage to the property by a covered event. Extra Expense provides the necessary extra expense for temporary locations or to expedite the repairs so the ministry can be operational. |
| Additional Property Coverage | Equipment Breakdown Coverage – While property policies will cover such things as fire, explosions, etc., most will not cover the explosion of a boiler or damage to electronics or HVAC if they are damaged by an artificially generated electrical circuits. This coverage can be used to insure against such loss and is normally included in most main-line policies but be sure to verify.
Flood / Water damage – Damage by flood or rising water is generally excluded from most coverage forms. Coverage is available through the National Flood Insurance Plan or plans by other companies. Certain to specific qualifications, some companies may include flood coverage within their policy by endorsement but often the coverage is limited or subject to a higher deductible. Check with your agent/carrier to be sure. Inland Marine – This coverage most often is to specifically schedule items of an unusual nature or value plus it can be used to cover items such as golf carts, tractors, etc. The name is often misleading, it has nothing to do with watercraft; it just provides means of insuring specific property items that the normal property coverage does not. Law and Ordinance Enforcement Coverage – This extends coverage to three areas: the value of the undamaged portion of the 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 – Most policies cover the pastor’s business-related property with a limited amount of coverage. Some will include their non-business personal property at the parsonage or rented dwelling. Check with your agent to verify adequate coverage. Personal Property (Contents) Away from Primary Location – There is normally limited coverage value on property that is away from the church premises. Check with your agent to verify adequate coverage. |
| Crime | Employee Dishonesty/Fidelity Bond – Various limits are available for this typical embezzlement type of loss. Some coverage may be automatically included in the policy but evaluate your own needs against those values.
Forgery – Protection against check or other fraudulent methods Money & Securities – In essence, this is theft of offering protection. |
Liability
| General Liability | Liability will come into play when the church is legally liable for bodily injury or property damage. In addition to paying the damages for the injured party, the policy usually covers defense costs for litigation. Churches should carry at least $1 million in general liability coverage. |
| Sexual Misconduct Liability |
Not only is it wise to have coverage for a real incident but also to defend against an allegation. Defense costs can climb into the hundreds of thousands of dollars. The amount paid to the plaintiff is often substantial, and can force a church into bankruptcy or liquidation. The number of claims under sexual misconduct has remained steady over the most recent years. Many companies will require screening and supervision standards to be met in order to obtain higher coverage limits. A church should strive to obtain as high a coverage limit as possible. |
| Director’s and Officer’s Liability | This is coverage for decisions made by your board/officers/trustees. Even though many states offer protection for volunteer board members of non-profit organizations, there can still be significant defense costs should legal action be brought against the members of the Board. The policy provides that defense. Limits of $1 million are recommended for most churches while larger churches or those with significantly more assets should consider higher limits. |
| Employment Practices Liability | This coverage provides for claims arising from practices associated with employment-related events. This includes claims of discrimination, wrongful termination, etc. The premium cost for this item is usually less than only a few hours of attorney fees. |
| Professional Liability/Counseling Acts Liability | Pastors and counselors are sometimes accused of physical and emotional harm. This coverage would provide for a claim arising from the practice of pastoral direction or counseling. Limits should match the general liability limits. |
| Cyber Liability | Experts are warning that churches and nonprofits are increasingly falling victim to cyber-crimes and other online challenges. These risks are generally not covered under your general liability policy. Social media and computer breaches are two of the areas at risk and the monetary loss for both can be significant. |
| Foreign Liability and Foreign Travel Insurance | If your church is involved in travel outside the continental United States, there may be limits or exclusions on your basic coverage. Check with your agent to see if this coverage is needed. |
| Hired and Non-Owned Autos | This provides liability coverage for rented automobiles and use of other non-owned autos. In the event church members are using personal autos, their insurance is primary and this insurance is available only after the primary insurance is exhausted. |
Other
| Medical Payments | This endorsement allows payment to individuals who are injured on the church property regardless of fault. In many cases, medical payment coverage is excluded if due to injuries sustained in any type of athletic participation and typically excluded to children in a mid-week daycares, pre-K programs, etc. Coverage can be purchased through a separate Accident policy. |
| Workers Compensation | Each state has its own version of workers’ compensation laws and coverage. In general, workers compensation insurance covers 100% of the medical bills for an employee when injured on the job due to a job related activity. Lost wages are compensated at a percentage of the wages determined by each state. The employer’s liability portion of this policy covers the employer for any negligent acts that result in injury to an employee. In Texas, those electing not to purchase this coverage do so at the risk of self-insuring a loss and losing all common law defenses of disputing a claim. |
| Umbrella (Excess) Liability | This is an added coverage that acts as an umbrella over your other liability coverage should those coverage limits be reached through claims activity. This coverage is for those rare but extremely expensive liability claims. For instance, if the excess liability goes over an auto policy, it would provide coverage in excess of the limits for the auto coverage in the event of a serious accident that would result in more than the limits of the auto liability policy. The excess liability would provide coverage after the auto policy limits were exhausted. |
There are other coverages available depending on the level of need and activity your church is involved in. The key is always maintaining a good relationship with your agent and keeping lines of communication open should you have questions regarding your coverage. Also, if you engage in a new ministry, add a new building or room, or obtain a piece of equipment, contact your insurance professional so your policy can be reviewed for sufficient coverage.
