Investigating Insurance: Is Your Church Really Covered?

church insurance check-up

By RaeAnn Slaybaugh

Don’t just assume your current coverage is adequate; brush up on best practices from in-the-trenches church insurance experts.

With all that’s required of a large-church pastor every day, it’s easy to get complacent about insurance coverage. But, if church leaders did take the time to really consider what’s at risk with inadequate coverage, a few top-of-mind questions would no doubt emerge:

  • How can I make sure my church is 100% covered? (Is that even possible?)
  • When should I revaluate our existing policy? Is waiting until renewal time good enough?
  • How can I ensure our liability limits are high enough?
  • Are there gaps in our current policy that could prove catastrophic to our ministry?

To answer all these questions, Church Executive interviewed  a handful of church insurance specialists: Melany Stonewall, corporate communications manager at GuideOne Insurance in West Des Moines, IA; Scott Figgins, vice president — underwriting at Brotherhood Mutual Insurance in Fort Wayne, IN; and Patrick Moreland, CPCU, vice president — marketing at Church Mutual Insurance Company in Merrill, WI.

No such thing as “100% coverage”
Despite a pastor’s best efforts, Moreland, Figgins and Stonewall all agree on one thing: There will always be risks that are unforeseeable and/or uninsurable.

To this end, Figgins cites four categories of risk that even church-specific insurance policies won’t cover. The first is moral hazard. “In other words, you can’t buy insurance to cover a criminal act [such as a person who commits a sexual assault],” he says. The second is morale hazard. “For example, a property policy would cover water damage, but not to replace a roof that, due to lack of care and maintenance, now needs to be replaced,” Figgins explains.

Additionally, he points out, coverage isn’t available for non-compensatory (such as punitive) damages, which some states wouldn’t allow insurance to cover — as a result of using inherently dangerous products, for example — or for uninsurable risks that are so infrequent that there’s no way to collect enough premiums to cover the damage. War and nuclear explosions are a few examples of the latter.

Stonewall concurs with Figgins’ assessment. “Policies generally don’t cover claims from pollution, war and intentional injury/neglect,” she says. “All insurance contracts/policies have exclusionary wording, limits and sub-limits. The insurance committee or person handling insurance should meet with their agent to have a clear understanding of insurance options.”

Revaluate your coverage (before you need to) Moreland recommends taking a close look at the church’s insurance policy every three years.

“However, it’s also important to notify your agent whenever there are significant changes, such as a new building, or if a vehicle is purchased or sold, or a new ministry is added,” he says.

Figgins agrees that the additions of “new buildings, new vehicles, new equipment, new ministries and new activities” are critical times to reevaluate insurance coverage. Overall, he recommends that large churches revisit their policies at least every few years, if not annually. “And when they do, they should factor in the accumulation of personal property, he emphasizes. “In the event of a total loss, churches don’t often have enough coverage for accumulated audiovisual equipment, for example.” Figgins also suggests that pastors keep up with building values and inflation, and adjust their coverage accordingly.

In Stonewall’s experience, large churches are more proactive than their smaller counterparts in reevaluating their policies outside of renewal time. “[They typically have] staff dedicated to managing the administrative side of church business — a business administrator or executive pastor,” she explains. “Additionally, many church bylaws state that items such as property/casualty insurance must be reviewed and quoted every three years. And, boards normally have new members every two years. This sometimes causes the insurance to be reviewed.”

An extra layer of protection is available
Beyond property, liability, automobile and workmen’s compensation policies is an extra “layer of protection” for churches: an umbrella, or excess, policy.

An umbrella policy does more than just “fill in the gaps” of these other primary coverage areas, as Stonewall explains. “It should be seen as an extra layer of coverage to help protect the church’s assets once their underlying coverage limits have been exhausted,” she says. “Umbrella coverage levels begin at $1 million and can run up to $25 million and beyond.”

Moreland agrees, and cites a catastrophic potential lawsuit as an example of why such coverage is important to consider. “Imagine if the church vehicle crashes into a van full of children or a highly paid medical specialist or corporate executive driving with his or her family,” he says. “In an event like that, no agent can  ever tell you what liability limit is enough; the sky is the limit. The best advice is to buy the highest limit you can afford.”

For his part, Figgins says “excess” policies in the range of $1 million to $5 million are common among his large church clients. However, he’s seen church leaders opt for up to $25 million in excess coverage.

Familiarize yourself with lesser-known policies
Several lesser-known, but crucial, insurance coverage areas exist for churches. As Figgins points out, foreign liability coverage (for mission trips) is a vital, but often overlooked, policy. Whereas traditional liability coverage/policies are intended for the U.S., Canada and Puerto Rico, it can cost between $50,000 and $100,000 to evacuate a volunteer or staff member from a foreign country. As another example, if a mission volunteer travels to the Middle East and is sued, such a policy would cover that scenario.

Stonewall agrees that foreign liability coverage is very important; but, another area of concern, for her, is how many churches are underinsured in relation to the full replacement cost of their property. “We often find that a church hasn’t had a true replacement cost valuation of their buildings and contents in quite a while,” she says. “This results in their insurance coverage being too low in the event that they have a major claim.”

To this end, Stonewall says it’s very important to have a church insurance specialist agent evaluate the replacement cost of the church properties before providing an insurance proposal. “A pastor today should ask his or her agent when the last time the church’s buildings and contents were evaluated for a true replacement-cost analysis,” she advises.

Moreland also encounters churches with inadequate limits on buildings. To remedy this, he suggests having an insurance agent measure all the buildings, ascertain construction quality and type, and develop a reasonable estimate of the cost to replace each building.

Additionally, churches with low limits of liability are an area of concern for Moreland. “Budgets are tight in tough economic times, and it can be tempting to scale back on insurance,” he concedes. “However, churches need to consider that tight economic times don’t reduce the likelihood of a fire, tornado, hurricane, theft, vandalism or injury-causing lawsuit.”

Other often underinsured areas of risk for churches include:

Employment practices. According to Stonewall, this is an area of coverage where many churches are lacking. Even more troubling, most haven’t undergone the necessary training to avoid these types of claims, nor do they have the typical HR staff to handle these types of employment issues.

“Churches are no longer immune to being sued by their employees for employment practices,” Stonewall points out. “Hiring and termination practices, discrimination and sexual harassment exposures are concerns today.”

Cyber liability. A new area of concern in today’s fast-paced, technology-driven society, churches are far from immune to cyber liability risk. “Some churches collect personal data on their members, and many take donations and fees over the internet and have bank account and credit card data from their members,” Stonewall points out. In the event such sensitive data is compromised and stolen, the church has a large cyber liability exposure. “In this case, a church without the right insurance protection would bear the cost of providing credit protection services and potentially any stolen money for the victimized members,” she adds. “This can become very costly.”

Sexual misconduct. While insurance coverage for these types of claims is widely available for churches, the risk management and training to help them avoid them altogether is even more critical.

“Insurance is good at paying money, but it won’t protect your church’s reputation,” Figgins points out. “Having enough insurance doesn’t equal doing the right thing.”

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Risk Management Resources
(Just a Mouse-Click Away!)

For church leaders, ensuring adequate insurance coverage and practicing proactive risk management go hand-in-hand. Fortunately, they don’t have to “go it alone” when navigating the complicated, yet critical, realm of risk management.

Plenty of downloadable resources are available from Glatfelter Religious Practice (A Division of Glatfelter Insurance Group) and Arthur J. Gallagher Risk Management Services, which specializes in religious institutions.

For the following resources, visit the Arthur J. Gallagher Risk Management Services website at www.ajgrms.com. Select “Religious” in the “Select Industry” pull-down menu, followed by  “Knowledge Center.”

  • Fine Arts — Realizing Hidden Assets
  • Case Study — Religious Institution 403(b) Plan Alternatives
  • Gallagher Employee Benefits Expertise for Religious Entities
  • Risk Control Services for Religious Entities

For copies of these two items, contact Peter Persuitti — Gallagher’s managing director, religious practice — at peter_persuitti@ajg.com.

  • Nonprofits — Section 403(b) Final Regulations and Overview and Action Plan
  • Top Ten Safety and Security Questions

Dozens of whitepapers (from administrative, to liability, to vehicles) are available on the Glatfelter Religious Practice website at www.glatfelterreligiouspractice.com. Select the “Risk Control” tab. They include:

  • Emergency Action Plan Outline
  • Harassment and Discrimination Prevention Training
  • Exit Interview Procedures
  • Cooking — Fire Prevention and Protection
  • Slip-and-Fall Prevention
  • 15-Passenger Van Safety
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