Unfortunately, there is no simple answer to this question. Here are a few points that may help:
- In general, the amount of coverage should be based on two primary considerations: (1) the nature and frequency of your activities, and (2) the net value of the church’s assets. To illustrate, if your church has a youth program that has frequent meetings involving several minors, or your church provides counseling, or hosts community activities, then your liability risks are increased and you should be looking for higher insurance limits. Further, as a general rule, liability insurance should have limits in excess of the net value of the church’s assets, so that the assets are protected in the event of litigation.
- Annually review all church insurance coverages to be sure they are adequate in amount.
- Annually review all church insurance coverages to be sure you are covering the risks you want. Churches will differ as to what risks they want covered. Examples of risks that should be considered include sexual misconduct, autos, counseling, earthquake, mold, sewer backup, non-owned vehicles, employment practices, theft, foreign travel, and workers compensation.
- Periodically obtain appraisals of church property (real property, personal property, and fixtures) to be sure that you have adequate coverage.
- Be sure that your church is insured for an amount in excess of what is required by a “coinsurance clause” in your insurance policy. A coinsurance clause is often difficult to understand, but the idea is that unless a church is insured for a specified amount (e.g., 80% of market value) then the church becomes a “coinsurer” in the event of a partial loss, and is responsible for paying part of that loss. This is done by a reduction in the amount that the insurer has to pay. The purpose of such clauses is to persuade property owners to insure their property for an amount equal to or approaching its market value. Over time, a church’s failure to increase the amount of its property insurance to reflect the current value of the church property will reduce the insured amount to less than the coinsurance amount, and this can result in an unpleasant and unbudgeted expense when the insurer only pays a portion of a substantial partial loss.
This article first appeared in Church Treasurer Alert, October 2003.
