How the Coinsurance Clause affects Church Insurance Coverage
We frequently talk with churches about their insurance coverages. One of the most common discussions we have with churches is around the subject of the coinsurance clause.
We recently talked with a church located in Washington. Our quote was coming back around $1,000 higher than their current church insurance policy. When we first talk the Pastor was not able to located his church insurance policy.
In our discussions, I said it is very unusual that our pricing would be higher than your current church property insurance companies policy. This is because that church insurance companies property rates are higher than the company I was recommending. The Pastor advised that he had found his church insurance policy. I asked him to look for the building coverage.
Upon, finding the church building insurance coverage for his church, he stated that his church was insured for about $450,000 and the policy had a 90% coinsurance clause. I told the Pastor I think we have discovered the problem. We had ran a Replacement Cost Calculator for his church building, and based on the square footage, type of church building, and location (zip code of the church building) we had calculated the replacement cost to be $2,600,000 (rounded down).
I asked the Pastor if he knew how the coinsurance clause worked and he stated, No I don’t. Unfortunately most insurance agent’s also do not understand how the coinsurance clause works as well.
Calculating Coinsurance and its' effects on your Church Property Insurance
Most church property insurance policies include a coinsurance clause. The coinsurance clause when applied will either be 80% or 90%. If your church insurance policy includes a coinsurance clause, the amount of insurance you have purchased (the limit of insurance) must equal or exceed a specified percentage of the value of the insured property.
For example, if a 90% coinsurance applies to your building, the limit of insurance must be at least 90% of the building’s value. If the policy limit you have selected is below 90 percentage, your claim payment will be reduced in proportion to the deficiency. The coinsurance percentage typically is found within your building limit coverages detail pages.
Here is what you can expect at the time of a loss from your church insurance policy you have obtained.
The loss control claim professional will review your policy and see if it includes a coinsurance clause. He or she will:
- Determine the applicable limit of insurance
- Determine the value of the lost or damaged property (e.g., your building) at the time of the loss
- Apply the coinsurance percentage to the value of the property
- Determine whether the limit of insurance equals or exceeds that amount
- Explain to you how an unmet coinsurance requirement will affect your claim payment
This is the formula for determining whether the amount of insurance you have purchased (the limit of insurance) meets your coinsurance requirement:
Value of the Church property x Coinsurance percentage = The Minimum insurance amount required
Here are two examples of how coinsurance works, based my discussion with the Pastor in Washington. This will be based on a insurance policy that is written on a replacement cost value basis.
Scenario 1: Coinsurance requirement is satisfied:
The building limit is $2,600,000
The value of the building at the time of the loss is $2,600,000
The coinsurance percentage is 90%
The limit of insurance should be at least $2,600,000 x 90% = $2,340,000
Because the building limit meets the minimum amount of insurance required under the coinsurance clause, the amount due on a claim is not affected:
If the church filed a claim and the cost to repair the covered damage is $120,000
The deductible is $2,500
The amount payable based on Replacement Cost Value (RCV) is $117,500
This amount represents 100% of the cost to repair the covered damage minus the deductible.
Scenario 2: Coinsurance requirement is not satisfied:
The building limit is only $450,000
The value of the building at the time of loss is $2,600,000
The coinsurance percentage is 90%
The limit of insurance should be at least $2,600,000 x 90% = $2,340,000
Because the amount of insurance purchased is only 17.31% of the amount required ($400,000/$2,600,000), coverage is afforded for only 17.31% of the repair cost:
The cost to repair the covered damage is $120,000
17.31% of the repair cost is 120,000 x 17.31% is $20,772
The deductible is $2,500
The amount payable based on RCV is $18,272.
Now if this was a total loss this church was not be able to rebuild their church as the same formula would be applied.
Don't get blindsided, Get covered through Integrity Now Insurance Brokers
At Integrity Now Insurance Brokers, we will do everything in our ability to make sure your church is not under insured. We run a replacement cost estimator on every church building you own.
We will also go over this calculation with our clients to make sure you agree with how the calculation was completed. We don’t want your church to run into a coinsurance issue today or in the future. By using church insurance providers who specialize in churches, this helps provided the added protection your church needs.
We will also make sure you churches general liability insurance coverage provides the needed protection for your church.
If you are running a church in California, Ohio, Nevada, Washington, Colorado, Arizona, or Texas, Integrity Now Insurance is at your disposal. Our competent church insurance brokers are determined to help churches across these seven states to find a suitable insurance company that caters to their special needs. Call us for more information.
We look forward to hearing from you. Feel free to give us a call or fill out our Church Insurance Quote form.
