Church Insurance 101

Posted on April 24th, 2012
Image © Kratka Photography | Flickr | Creative Commons

Insurance can be confusing enough when it is your own home or vehicle in question. Insurance for your church presents a much wider range of risks to protect against, and while many leaders think that no one would sue the church after an accident or for malpractice in pastoral counseling, it can—and does—happen, and churches must be prepared to control loss in those situations.

Oftentimes when navigating the insurance marketplace people get lost in the price war that companies present. Loss control goes unmentioned, even though it can help lower premiums over time, by preventing claims.

Below are 10 areas of coverage you should look for in insurance policies, and practical ways to control loss in each area.

Theft

Theft is becoming an increasing problem within the religious community. Historically, as economic conditions decline, crimes of this nature increase. With the rise of copper prices, it is becoming a new favorite among criminals. Copper is being stolen from roofs and air condition units. Money is being stolen as well. Many people immediately go to the image of a person in a mask at night when they think of theft, but this is no longer the case. Stories of theft in churches include a surprising number of inside jobs.

To Control the Loss:

To prevent copper theft, consider caging your air condition unit. Some are going as far as to hook the cage into their alarm systems. Some insurance companies recognize the effort if you do cage the unit and are offering incentives, such as lowering deductibles. Installing a central station burglar alarm is also a good idea if any sort of valuables or money are in the church. If a central station burglar alarm is out of reach in the budget, an alarm that sounds would be better than no alarm. It may scare the thief enough to flee so the ultimate loss may be less. Keep the building exterior well lit, and give contact information to people living in sight of the church. If a neighbor sees something suspicious, they can notify a member of the church or authorities.

To prevent inside theft, have a dual control system when money is involved. Don’t leave money handling to one person have a policy requiring two unrelated people. A checks and balances approach like this can prevent anyone from having the opportunity or temptation to steal.

Equipment Breakdown

This coverage is exactly how it sounds, any type of equipment that breaks down for reasons other than wear and tear. Coverage forms can vary with exclusions and different states, but that is the basic idea. “Equipment” includes things like air conditioning, generators, boilers, hot water heaters, pumps, blowers, computers, and electrical panels. Institutions assume this is covered by property insurance. Property insurance can often leave gaps for coverage when it comes to mechanical equipment. Mechanical Breakdown is a broader coverage that helps to fill gaps that property insurance may leave out.

To Control the Loss:

Regularly maintain equipment and record any updates you have done and set your calendar for any future recommended updates, cleaning, or maintenance the equipment requires. You can also get them inspected yearly by a licensed professional depending on the size or cost of the equipment this could be required by the insurance company.

Extra Expense

Businesses are usually familiar with Business Income coverage. It pays for income that would have been made if a covered loss had not occurred. Extra Expense is a similar coverage. The reason extra expense is important for religious institutions is because Business Income coverage will only pay for extra expense when it causes the overall loss to be less. Therefore this coverage will not pay for you to set up service elsewhere if the income at the new location is less than the cost to set up. Extra expense pays to set up elsewhere if the church building is lost to fire or tornado, even if it does not benefit the situation monetarily, so that the church can continue to have service.

To Control the Loss:

Planning is key to having successful loss control. Have a place in mind that could be rented if something were to happen to the facility, a prearranged deal can be useful in a catastrophe situation. Without a prearranged price, if something catastrophic occurs, such as a tornado, prices of undamaged facilities will rise as demand rises. Having it prearranged can ensure the church family can have a facility to not only worship together, but to help the community.

Accident

An accident policy is something that is usually purchased separately from property and liability insurance. This coverage allows the church to help pay for medical cost should a member obtain an injury in a church sponsored activity. An example is, if the youth is playing kickball in the yard and a child sprains their ankle. Accident policies can be purchased on what is known as an “excess” basis. This means that it pays after the normal health insurance of the injured individual is exhausted.

To Control the Loss:

In this case, to help control the exposure, be careful in what activities are planned. Make sure parents know what will be going on and use protective gear when necessary.

Non-Owned & Hired Auto

If the church does not have an auto policy this will be on your general liability as an option, if you do have auto policy it will likely be listed on that policy. Non-owned and hired auto coverage covers liability losses in excess of the member’s coverage if a member of the church is using their own vehicle to participate in a church activity. Unfortunately with the cost of medical bills on the rise, it does not take long to exhaust state required minimums. For example, North Carolina requires that you carry $30/60/25 limits. This means that per person injured at your fault you have $30,000 and you have $60,000 for the whole accident for liability. If you hit someone and cause $50,000 in medical bills and lost wages a piece for two people, there is a $40,000 gap. When the injured party tries to obtain payment, they will go to the church as well.

To Control the Loss:

Check motor vehicle reports and driving records for common drivers. Many insurance companies offer discounts for these services. Have a written policy in place, such as no more than one at-fault accidents in five years.

Pastoral Counseling

Smaller churches tend to skip out on this coverage since they don’t officially offer counseling services. One thing to remember is almost all churches offer counseling. If you decide to marry a couple, the pastor provides pre-marital counseling for the couple. In many cases they could be counseling someone that is not a member of the church. The normal general liability policy excludes professional services, so coverage would be limited, if any in the policy.

To Control the Loss:

Things that can be done to alleviate losses in this area are checking the credentials of the current pastor for counseling and limiting what types of counseling are doing done. Having a niche in one type of counseling can be less risky than being a generalist.

Sexual Abuse and Molestation

It is an unfortunate fact that this is a necessary coverage. With the media and recent claims this is now a very real exposure for any church. Normally general liability policies will exclude sexual abuse and molestation, but it can be purchased back as an endorsement or purchased separately depending on the exposure. Watch out for wording regarding this coverage. Words such as “limited” should be cause for further investigation.

To Control the Loss:

Always have two people in a room with children, or in a car with children. Never be alone with a child, even if a person thinks it is ok, they shouldn’t leave room for speculation. Have someone else present. Run background checks on anyone working with children, this can be done at discount prices with many insurance companies. Make new members wait at least a year before they work with children. Have a written plan on how to handle allegations, and have policies on preventing them in a church handbook. Any time you hire someone new or have a member volunteering in a service position have them engage in personal interviews and include the sexual abuse prevention procedures in those trainings.

Directors & Officers

Any time you volunteer to be on a board for a non-profit you are volunteering your personal liability insurance. When a board makes a decision, the board members can be held liable for the effects of that decision. You want to make sure that the board has coverage that will cover its members. Directors & Officers Insurance provides coverage for directors and officers.

To Control the Loss:

Document decisions. Also, be aware of any conflicts of interest between board members and the decision being made. There is no shame in sitting out on a vote as a board member if a conflict of interest exists. Asking someone to sit out is ok too; the board member may be relieved to be removed from the situation.

Mission Trips

Be wary of the definition of “coverage territory” in your policies. A majority of policies define coverage territory as the United States, United States territories, and Canada. There are endorsements that provide World Wide coverage for liability. With the help of associations many smaller churches are having the opportunity to go abroad to third world countries and help, where they may not have had the funding to go before, and the church should be taking measures to keep their members safe.

To Control the Loss:

Buy travel insurance. Members can be persuaded to buy their own insurance or the church can purchase the insurance on the group as a whole. Many insurance companies specializing in religious institutions offer the policies and can help their clients get what they need to truly cover the exposure.

Umbrella

An umbrella is a policy that sits on top of the other policies. If a covered auto liability loss occurs or a covered general liability loss and those limits become exhausted then the umbrella picks up coverage for the additional loss up to its limit. Without getting too technical, in many cases these are fairly inexpensive and follow the coverage of the underlying policies. The larger and more complex the exposures under the umbrella, the more the umbrella can cost and the more complex the umbrella coverage can be.

To Control the Loss:

Loss control procedures for your auto and liability coverage can help prevent losses and lower the damage when a loss occurs, therefore reducing the risk of reaching your limit and needing the umbrella. When the initial loss occurs, document everything. The quicker you get the information, the better. This is because the details are always fresh, over time it can get a bit fuzzy. If someone is injured, have them go to a hospital. If they wait the injury could become worse. If it does not only does the injured party suffer but the loss becomes much greater.

Insurance can get very complicated but knowing some basic coverages that you will need and steps to prevent losses can help any organization in the long run. If you do have questions ask your agent. As an agent I often meet with church finance committees and review the coverage they have and make recommendations for controlling losses. Agents often can help with loss control ideas or direct you to someone who can.

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