As we drive through the countryside we cannot 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 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 what options do they have 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 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 with oak molding or oak flooring.
Actual cash value 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 the oak flooring maybe 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 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 coinsurance 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.