Reminiscing on when we drove through the countryside, we could not help but to enjoy the different scenery — some plain and some really interesting. Some of the most diverse buildings I think you will find are the Churches. Some are simple and plain while others are very stately built with stone, and can be very ornate. I was recently asked by a large, older church with a smaller membership about what options they had to properly insure their church building? They have heard about actual cash value and functional replacement coverage. Can I save money doing this? What protection do I lose?
Replacement cost Insurance for the building is your best option. In the event of a loss with less deductible, the insurance company agrees to repair or replace your property with like kind and quality building materials. Example: if oak molding or oak flooring are damaged, the insurance company will replace it in full with oak molding or oak flooring.
The next option is actual cash value, which is a reduction in premium and in coverage. Actual cash value is defined as replacement cost less depreciation. You can insure your building for about 60% of the replacement cost. In the event of a loss, the insurance company will depreciate the damaged area based on age of the items damaged. This allows for some reasonable negotiation. In the rebuilding process, for example, the oak flooring may be discounted 25% to 30% due to age and wear. On a 10,000 replacement loss, you may only get $7,000 to $7,500. Labor is usually not depreciated. This can be a large unexpected expense at the time of a loss, if not managed properly.
The last option for property insurance to consider is a functional value endorsement. This gives coverage on a loss settlement basis up to the face amount of the policy. Unlike the replacement cost and actual cash value forms, there is no co-insurance penalty clause. This form is generally used to protect the client in the event of a catastrophic loss. While the building is still functional for everyday use, it is beyond its useful life to rebuild in the event of a total loss. This form is used when it is determined that the new church building would be built in a much smaller size.
The coverage for a partial loss applies using current, less costly material if available in the architectural style that existed prior to loss. Example: we are replacing plaster with drywall. We are painting walls versus using wallpaper. We may replace oak trim moldings with pine and stain it accordingly.
Richey-Barrett Insurance is your Trusted Choice Independent Insurance Agent for church property insurance. Contact us for quality, competitive, church property insurance programs.