Church leaders typically encounter the following insurance terms. Here are their meanings:
Actual Cash Value—The cost of replacing damaged or destroyed property with comparable new property, minus depreciation and obsolescence. For example, 20-year-old church pews will not be replaced at current full value because of two decades of depreciation. In some instances, artistic or antique property may appreciate over time. To receive full coverage, such items must be specifically scheduled in a policy.
Appurtenant Structures—Includes additional buildings on the same property as the principal insured building. Most property insurance contracts cover appurtenant structures.
Business Personal Property (Contents)—As distinguished from personal property, business personal property includes items such as furniture and fixtures, machinery, stock, manufactured or raw goods, and personal property owned by the insured and used in the business while located within 100 feet of the premises.
Certificate of Insurance—A form that verifies a policy has been written. It is often used as proof of insurance in loan transactions and for other legal requirements.
Claim—A demand made by the insured, or the insured’s beneficiary, for payment of the benefits as provided by the policy.
Deductible—Amount of loss that the insured pays before the insurance kicks in. It includes the following types:
- Absolute dollar amount—Amount the insured must pay before the insurance company will pay, up to the limits of the policy. The higher the absolute dollar amount, the lower the premium.
- Time period amount—Length of time the insured must wait before any benefit payments are made by the insurance company.
Directors and Officers Liability Insurance—Insurance that protects an entity and its corporate directors and officers against claims alleging financial loss resulting from the wrongful acts or mismanagement of the corporation’s directors and officers.
Employment Practices Liability (EPL) Coverage—A claims-made coverage for the insured’s liability exposure arising out of employment practices.
Inland Marine—A policy that lists specific pieces of property at a designated value for coverage.
Insurance to Value—The appropriate amount of insurance to cover the value of the property being insured. It affords more complete protection to the policyholder to repair/replace property after a total loss.
Ordinance or Law—Coverage that insures against losses caused by enforcement of ordinances or laws regulating construction and repair of damaged buildings. Communities often have building ordinances that require that a building that has been damaged to a specified extent (i.e. 50 percent) must be demolished and rebuilt according to current building codes, rather than simply repaired. Ordinance or Law coverage pays for items, such as the loss of the undamaged portion of the building, the cost of demolishing the undamaged portion of the building, or the increased cost of rebuilding the entire structure according to current building codes. Without Ordinance or Law coverage, such costs would not be covered by insurance.
Risk Management—Management of the pure risks to which a church might be subject. It involves analyzing all exposures to the possibility of loss and determining how to handle these exposures through practices such as avoiding the risk, retaining the risk, reducing the risk, or transferring the risk, usually by insurance.
Umbrella Policy—Coverage for losses above the limit of an underlying liability policy, such as commercial general liability, business automobile, employers’ liability, and so on. While it applies to losses over the dollar amount in the underlying policies, terms of coverage are sometimes broader than those of underlying policies.
Underwriting—The process of selecting risks for insurance and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process also includes rejection of those risks that do not qualify.