Hey, Fletch: Does Our Church Have Enough Insurance Coverage?
Leaders must understand what is—and isn’t—covered by their policies.
Hey, Fletch: Does Our Church Have Enough Insurance Coverage?

In this regular column, longtime executive pastor and XPastor.org founder David Fletcher takes on readers’ questions about finances, staffing, communications, and more. Submit your questions using the subject line "Hey, Fletch" to editor@churchlawandtax.com.

Our church has $2 million in umbrella insurance. Is that enough coverage, especially if a sexual abuse claim were to ever arise?

When I get a question on insurance issues, I always turn to the professionals. Insurance can be a highly technical area—and I always need a refresher course. I posed your question to Charlie Cutler, a respected insurance agent in Southern California. Charlie is the prototype of a great agent—he’s knowledgeable, helpful, honest, gives it to you straight, and gets more information as it is needed. Here is what he had to say:

Glad to be brought into the conversation! If this particular church hasn’t jumped through quite a few hoops to include abuse in the umbrella, then it likely doesn’t have that coverage. The term “umbrella” is a bit misleading. It sounds like there is a broad policy that covers anything that happens at a church. Policies used to be written this way, but virtually all “umbrellas” nowadays require that there are limits on the base policy and that wording on the umbrella policy says that particular coverage is included in the higher limits. A more appropriate term is actually “excess.” This means that you have limits “in excess” of the base policy.

Key items that should be covered in a church’s insurance coverage include “directors & officers” (D&O), counseling, sexual misconduct, security (especially if a church has a formal team and/or if anyone is armed), cyberliability, foreign liability, and non-owned autos. The key to determining the right total limit for a church is that it should never be one person’s decision. The board should be informed annually about what the current limit is and review whether the board remains comfortable with that limit.

For an active church like the one here, most boards would be comfortable with a $1 million limit, plus a $2 million umbrella (for total protection of $3 million). (Note: A key point on this limit is that $1 million for D&O does not mean $1 million for each board member. That is the total amount of protection for the entire board. If you have board members with large assets, it will want a larger umbrella to extend over the D&O to cover board members’ personal exposure.)

The majority of claim dollars are spent on property. With construction growing and unemployment low, replacement costs are growing faster than most insurance policy limits. Most churches should increase their property limit by about 10 percent from 2017 to 2018.

Additionally, we see that most churches don’t think about the other costs during a claim. For instance, depending on the nature of the claim, a church may need to rent an alternative location, it may experience a decrease in giving, and much more. A major property claim (especially when it involves local municipalities that are difficult to work with) can last two years. Think of what it would cost to rent a space for two years to keep your ministry going.

Lastly, I’d like to emphasize the importance of “ordinance & law” coverage. If your church was built more than a couple of years ago, it doesn’t meet current codes, such as fire sprinklers, “green” upgrades, energy efficient requirements, access for the disabled, and so on. Talk about this with your agent (and hopefully a contractor in your congregation) to get a feel for what would be appropriate as far as coverage for these types of issues.

Insurance is more than an annoying line item in your budget. It’s a tool for ministry protection and continuity. A good agent should have a ministry-focused discussion with how this applies at your church!


For more help with understanding church insurance, check out Understanding Church Insurance, a downloadable resource featuring insights from attorney Richard Hammar, CPA Michael Batts, and more.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is published with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations."

Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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