Before Disaster Hits, Know What Your Insurance Covers

A church in New Hampshire learned a hard lesson last year when an electrical fire heavily damaged its 120-year-old building.

The Nottingham Community Universalist Church's insurance coverage fell far short of costs of restoring the building. The renovations are expected to cost around $275,000. Insurance will pay around $185,000, leaving the 20-member church to come up with the rest.

Ironically, the day before the fire former board president Jean Eichhorn took a representative of another insuror through the building. The next day, he was on his way to her house with a price quote, and presumably better coverage, when the fire broke out.

The church's problem, says Eichhorn, was in not updating its old policy for many years. And in not knowing exactly what was covered and what was not. She recalls that years ago the governing board reduced the coverage of "personal property" to save money. Then after the fire it discovered that things like the church's antique reed organ were considered personal property by the insuror. "It was a lack of knowledge on our part," she says.

Her husband, Neil R. Eichhorn, notes, "Insurance is one of the areas where churches often try to save a dime. There are so many other costs that have to be met. Then you have a disaster and you find out you're not covered."

Many congregations are unaware of the limits of their coverage, says Patrick Moreland, vice president of Church Mutual Insurance Company, Merrill, WI, the UUA-recommended carrier. Church Mutual insures 20 percent of all UU congregations.

Some coverages (fire and wind, for example) are obvious, but Moreland identifies other important risks:

• Floods, earthquakes, and sewer backups.

• If your building is old or severely damaged you may have to meet local building codes when you rebuild, including type of construction and handicapped accessibility. Many insurance plans don't cover this unless you specifically ask for "code compliance" coverage.

• If you carry inadequate insurance your insurer may penalize you in the event of a loss. Many policies stipulate that your insurance be not less than 80 percent of the value of the property. Having inadequate coverage may cause you to incur a "coinsurance" penalty, meaning you and the insurer share in the loss beyond the deductible.

• Claims may be settled on a replacement cost or actual cash value basis. With replacement cost you may repair or replace an item with material of comparable kind and quality. Actual cash value is the replacement cost less deterioration, depreciation, and obsolescence. Most churches need replacement cost coverage.

• Ministers should have homeowners or renters insurance to cover personal property not covered by the church policy.

• Personal vehicles vandalized or stolen in your parking lot are generally not covered.

• Loss-of-income protection is recommended if your church depends on rental income or school tuition fees. Coverage is also available for loss of rental value. And if your parsonage is heavily damaged by fire, you might need to rent a home while repairs are being made.

• Some policies limit coverage for broken glass. If the value of your windows exceeds your policy's limitations, get "full" glass coverage.

• Maintenance problems, such as a leaky basement or roof, and the damage they cause, are generally not insurable.

A future InterConnections article will look at liability coverage.