How to Ensure Your Church Has Adequate Insurance Coverage
Everything is a little more expensive lately. It's evident at the gas pump and the grocery store. And it’s impacting the construction and real estate industry. Property values are rising and inflation is driving building costs higher.
In an expensive market, many churches may not have enough insurance coverage for their property. As a result, a gap develops between the value of their assets and the replacement cost.
This gap can mean paying out of pocket for damages due to insufficient insurance coverage.
And the money to cover repairs and damages may take funds away from other critical ministry needs. So, while churches should be evaluating their coverage levels regularly, it's even more crucial to examine how much insurance you need in a time of high inflation.
The Risk of Total Loss
David Karns, Vice President of Underwriting at Southern Mutual Church Insurance Company (SMCI), said he's seeing a lot of volatility in the market right now.
He explained that the most pressing issue for many churches is the potential to be underinsured in the event of a total loss.
"Churches can be significantly impacted in a negative way if they haven't been paying attention to their values," Karns said.
Supply chain issues and rising inflation rates have increased material and labor costs, which makes repairs more expensive. As a result, a church lacking adequate coverage may still owe money for construction costs even after insurance pays for a claim.
A total loss, possibly from fire or severe weather, could devastate a church's budget. Karns said ministry leaders should track their property's value and assess their insurance needs.
Keeping Up with Costs
When most people think of property value, they imagine the selling price of a home. But Karns said property value from an insurance perspective is very different from market value.
Insurers like Southern Mutual Church Insurance Company look at replacement costs if a church is damaged. So, to get an accurate estimate of the expenses, churches should work with their insurer's assessment team, like SMCI's loss control department.
Southern Mutual Church Insurance inspectors visit all of their churches to examine the property, diagram buildings, and use that information to determine replacement costs.
"We come up with an objective evaluation," Karns said.
That number is also based on the costs of labor and materials needed to repair a church.
An accurate assessment is even more important for churches that have recently renovated or added facilities to their property.
Around three months before a policy renewal, SMCI's loss control team will visit a church to re-evaluate costs to determine the right amount of coverage and if any changes are needed.
Protecting Your Ministry with an Inflation Guard
Inflation guards protect policyholders from being underinsured due to rising construction costs. Since SMCI’s package-policy terms are three years, Karns recommends that churches consider adding the inflation guard if they don’t already have it included on their policy.
Here's an example of how an inflation guard could protect your church.
Suppose you have $1 million in coverage with a 4% inflation guard and experience a total loss at the end of the first year of your policy. In that case, the policy would have accumulated an additional $40,000 in coverage for the claim. Inflation guards are prorated, depending on the time of year a loss occurs. It's an extra layer of protection that helps mitigate rising prices.
"I think it helps them [churches] stay up with the increasing costs of construction and labor," Karns explained. Churches may select inflation guard rates of 2%, 4%, or 6%.
Determining the Right Level of Coverage
If it's been more than a year since your property replacement costs were evaluated, it’s a good idea to have our team reassess your policy. There's no cost to you and no obligation to increase your coverage.
Karns said the SMCI underwriting team understands that churches may be unable to afford higher coverage levels. One option to help offset this is to increase the deductible.
"I think considering a higher deductible and being willing to assume a little more risk is a good route for churches to go," he said.
If you're unsure what level of coverage you need, you should reach out to our team. We can create a new assessment, and see if adjustments are needed for your policy.