Another year of devastating wildfires in California is upon us. In the aftermath, many homeowners and business-owners discover they are actually underinsured for Property & Casualty (P&C) coverage and may not have sufficient insurance funds to rebuild. It’s like losing twice.
The explanation is simple: reducing the coverage amount lowers the premium for the property side of the policy. Some try to “game the system” by relying on “extended coverage limits” (such as 125 percent of replacement cost) to purchase less than the 100 percent replacement coverage they really need. In a worst-case scenario, no one is paying attention to the replacement cost over time, and now it’s actually much higher than the insurance amount.
When a structure is not insured to at least 80 percent of its full replacement cost, a formula known as “coinsurance” applies and will reduce the payment for a total loss by comparing how much insurance was purchased to the minimum that would have avoided coinsurance.
If I need $1,000,000 at the 100 percent level, but figure that $800,000 x 125% = $1,000,000, I can only get away with it if the cost to rebuild is not over $1,000,000. But what happens when the actual replacement cost is $1,500,000? I needed at least 80 percent of that — $1,200,000. I only purchased $800,000. 800/1200 = 75%. In a total loss, my policy will only pay 75 percent of the $800,000 I purchased, or $600,000. If I have 125 percent extended replacement, I’ll get $750,000. I have only half of what I need to replace what I lost.
And we haven’t even begun to consider all the “stuff” inside the structure that was damaged or destroyed. “Contents” coverage is based on a percentage of the structure, so low-balling structure coverage also reduces amounts payable for damaged or destroyed stuff.
Churches make dreadful mistakes by purchasing P&C insurance from companies whose names they recognize but don’t specialize in church insurance. That’s why CSBC has partnered with two agencies, Church & Casualty (representing Church Mutual Insurance Company) and Ministry Pacific (representing Great American and GuideOne) to help our churches avoid being underinsured.
These agencies will accurately assess your church’s replacement costs and recommend correct insurance coverage amounts. The policies from either agency are written by companies that specialize in church risks, and generally include coverages most other commercial P&C policies do not, without additional cost. We’re confident you’ll receive excellent coverage and value through either agency, but their policies are not identical, and there is no one-size-fits-all policy. Be sure to mention CSBC when you contact them.
We recommend you obtain quotes from both agencies, and possibly others, then contact me for an unbiased opinion of the coverage offered. As a licensed insurance agent for more than 20 years, I can help you understand what you need, what you’re being offered, and which policy does the best job of covering your risk exposure.
Contact CSBC HR and church compliance ministry at 559-256-0858 or firstname.lastname@example.org; Church & Casualty, 800-995-7525; Ministry Pacific, 866-870-2700.