Q&A: Can an Insurance Carrier Exclude a Disabled Pastor’s Housing Allowance from Benefit Calculations?

Our full-time minister has cancer and we filed a disability claim. The insurance carrier has refused to include his housing allowance as part of base salary benefit calculations. Instead, the carrier is only basing benefits upon $57,000—his salary minus his $24,000 housing allowance designation.

While the insurance policy salary/benefit limit is $81,000, the claims department points to language in the policy that is interpreted as meaning the housing allowance doesn’t qualify as part of the pastor’s salary. We have exhausted our “friendly negotiation” options and are wondering about next steps. Would it be wise to involve legal counsel in hopes of having the housing allowance included in the salary?

Our firm had a similar issue arise with regard to a disabled pastor we represented. As with your situation, the insurance carrier declined to include the housing allowance in determining compensation. The disabled pastor ended up suing and received a significant settlement from the insurance carrier.

With that said, I believe it may be wise for you to seek legal counsel to resolve this issue.

I would also like to offer some advice for anyone reading this who might find themselves needing to file an insurance claim for a disabled pastor.

Clearly, the housing allowance is a part of the compensation/salary paid. Therefore, a claim should be filed for the total amount of a pastor’s compensation—without creating a possible issue by separating the housing or parsonage designation from the overall salary amount.

In the situation involving the disabled pastor we represented, it became an issue because the pastor brought it up to the insurance company. He asked because he wanted to make sure he was correctly calculating his salary, and he wasn’t certain his allowance could be included for the purpose of the claim. Had he not discussed the allowance portion of his salary with the insurance carrier, it is possible that the matter would not have even come up.

As a lawyer, I want to stress that there isn’t anything ethically or morally wrong with this approach. Insurance companies unfamiliar with housing or parsonage allowances simply may not understanding how tax exemption and compensation work for clergy.

As our firm’s case shows, a disabled pastor could ultimately win the case. But why put yourself through litigation if you don’t have to? The bottom line: When it comes to a claim, a disabled pastor should simply report his compensation, not separating his allowance from the rest of his compensation.

For information on how to properly designate housing and parsonage allowances, see:

• “Designating a Housing Allowance for 2020” BY Richard R. Hammar
• “Sample Housing Allowance for 2020” by Richard R. Hammar
• Annual Church & Clergy Tax Guide—see the “Parsonages and Housing Allowances” chapter