Rebuilding your church…does your policy give you enough coverage?

When Hurricane Katrina hit New Orleans and the Gulf Coast, damaging and wiping out thousands of homes and buildings, many churches were also looking to their insurance companies for help and information. The main question on all of their minds and tongues was, “Does our policy give us enough coverage to rebuild?”

Consider the story of St. Luke’s Church, one of 52 Episcopal parish churches in the Louisiana diocese:

While the church itself did not need to be gutted because the plaster did not remain wet and create mold, the remaining church buildings at St. Luke’s, including the office complex, sustained 18 to 24 inches of water throughout and needed to be gutted and rebuilt.

A church restoration company that provided consulting and construction services for religious buildings came down three or four days after the storm to help mitigate the damage from the water and mold. They made bids on the repair work that needed to be done.

The church’s insurance coverage included flood insurance which made reconstruction possible. The insurance company made every effort to make sure that things went well. Church officials were able to call their agent and get answers when any kind of problem or confusion arose. Clearly, adequate flood insurance was able to ensuring a bright future for St. Luke’s Church.

Then there is the story of the Christian Valley Baptist Church meetinghouse that was flattened by a tornado with 150 mph winds in Boligee, Alabama. Boligee is in Greene County, one of Alabama’s 14 poorest counties, each of which has a poverty rate of 20 percent or more. The town is home to about 400 people. With few job opportunities and a high school graduation rate of only 50 percent, prospects for the immediate future of Boligee appear dim.

This state of high poverty and few opportunities also impacted the funds of the Christian Valley Baptist Church, whose church insurance coverage was not adequate for their needs. Rather than carrying replacement cost coverage, which would have provided enough coverage to rebuild the church, the church purchased actual value coverage that only took into account the actual value of the building less the accumulated depreciation.

Contractors had given church officials estimates in excess of $500,000 to rebuild the church. But because the building was old, the insurance policy coverage only came to about $165,000, an amount insufficient to replace the church. The pastor was despondent; the congregants had been proud of their meetinghouse. He felt they had “lost their spirit” after seeing their church churned into rubble.

These two scenarios serve to illustrate what can happen to a congregation after disaster hits. The difference in the ability to recover from the disaster lies, in large part, with the type of insurance that the church carries.

A big challenge for many churches is in having enough property coverage. If a building was built 20 years ago, it may be insured at that cost, although the replacement cost today would be significantly higher than what it cost to build it. Do not assume that the amount you paid for the church or the amount of the loan is the correct value. Not having a sufficient amount of insurance to rebuild a church is the No. 1 issue with claims. The coverage amounts purchased should be enough to replace or rebuild the facilities with contracted labor and new building materials. The church cannot rely on volunteer labor and donated materials to rebuild structures in the event of a disaster.

Another big mistake that churches tend to make is that they often let their buildings and personal property limits lag behind the current values. Churches fail to increase the limits adequately, to grow with inflation. If they fail to report the new equipment and personal property to their insurance agent, such as a grand piano, new tables and chairs, or expensive sound equipment that enhances their ministry, they could find themselves underinsured in the event of a fire or natural disaster. Churches should regularly compare the current policy to their current church property. This comparison may turn up vehicles or buildings not listed on the policy, or listed at inappropriate values.

When figuring the value of the building, include everything that is permanently attached. Pews, video projectors, sound systems, and appliances that are anchored into the building are considered in the building value. Chairs and portable equipment are business personal property or contents.

It is recommended that routine appraisals be performed every few years, especially if renovations or new construction has been added. Ideally churches should insure for 100 percent of the appraised value of the property, but if it that puts too much of a strain on the church’s budget, lowering to 90 percent of the appraised value is an option. Another cost savings option is to increase the deductible. An increased deductible will decrease the cost of the yearly premium.

Property Coverage

Property coverage provides protection for your buildings and business personal property. It can also include the pastor’s personal property, stained glass windows, and equipment breakdowns such as computer crashes, and broken boilers or electrical equipment.

Most basic policies exclude flood and earthquake coverage. If you live in a high earthquake area such as California, then you will need to look at purchasing special earthquake coverage. Similarly, those living in the Gulf Coast areas should examine their policies carefully to ensure that they are protected from damage due to wind, hail, and flooding.

Some Additional Property Coverage

Inland marine – This coverage is for business personal property that church members take off-site and use in various locations. It can also cover items that the church uses in various locations on a larger church campus, such as golf carts, tools, rental equipment, etc. The name has nothing to do with watercraft. It refers to portable equipment moved around “inland.”

Business income – This replaces lost or reduced income the church suffers when there is damage to the property. It also pays the extra expense for temporary locations or the additional cost of expediting the repairs so that the ministry can be operational.

Electronic Data Processing (EDP) – This coverage provides insurance for computer hardware and software, phone systems, video systems, and other high-dollar hardware used in the church. General property coverage often places limits on the amount it pays for these items. EDP coverage also provides a broader coverage than the standard commercial property policy.

Water damage – Coverage may be available for floods and sewer backup. Options are available through a national flood plan or through other companies. Ask your agent to check the national flood map to determine if you are in such an area.

Also, when you are purchasing a church, the loan company will normally ask for a flood determination certificate. If you are in a hazardous flood zone, you may need to provide an elevation certificate to purchase flood insurance coverage.

Crime coverage – This add on will provide coverage for tithes and offerings. Analyze your normal weekly offerings to determine the correct amount of coverage

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