How To Avoid Insurance Penalties Arising From Coinsurance

The church property insurance marketplace in Texas is strained. This is not news to elders or other church leaders who have had to either search for new coverage due to a non-renewal or massive spike in their insurance premiums. One of the byproducts of this search for new coverage for churches is that administrators, finance committees, and elders are being forced to make hard decisions about policy limits that are being provided by their new insurance companies. The budgets are strained. The members are feeling tapped out. And the insurance costs are simply overwhelming.

When Steve called our office, he was feeling the weight of the overwhelming. He wasn't sure where to find the money for the extra costs of what he used to consider adequate insurance coverage for his church. He understands that insurance is a vital component of safeguarding a church's assets and operations, but navigating the soaring additional premium was impossible to meet in this year's budget. He was trying to find ways to save money without shifting to an actual cash value policy.

One important aspect that Steve and other churches in Texas need to grasp while looking at reducing coverage limits on property is coinsurance. This somewhat unknown clause can significantly impact how insurance claims are paid out in the event of property damage or loss. Steve was fascinated by the word and wanted to understand what coinsurance is and how it could create problems for him down the line.

What is Coinsurance?

Even though you likely have never heard of it, much like Steve, coinsurance is a provision commonly found in commercial property insurance policies. And yes, this includes those tailored for churches in Texas. This provision requires policyholders like Steve to maintain coverage for a specified percentage of the property's total value to receive a full payout on any potential claims. On most property policies for churches this percentage ranges from 80% to 90% of the total replacement cost property valuation. Maintaining this target number is important to make sure that your insured property is adequately protected.

How Coinsurance Affects Claims Payouts

Steve's immediate response to this explanation was to tell a scenario where this would apply to his church building. So we used his San Antonio church's building replacement cost to make sure that he grasped the gravity of the coinsurance penalty. Remember, the premise is that the church property is insured for less than the required percentage of its full replacement cost, as stipulated by the coinsurance clause in the policy. Here’s how it can impact his church in the event of a claim using some round numbers for easy comprehension.

1. Requirement to Insure to Value: Steve's church building is valued at $1,000,000 for full replacement. If the insurance provider has an 80% coinsurance clause on the policy, Steve's church must insure the building for at least $800,000 (80% of $1,000,000).
2. Example Calculation: If the church insures the building for only $600,000 instead of the required $800,000 in an attempt to save money, the problems can begin when there is a property loss.
   • Let's assume that the church experiences a $200,000 loss due to a covered event like hail.
   • The claim payment would be calculated as: ($600,000 / $800,000) * $200,000 = $150,000.
   • In this scenario, the church would receive $150,000 instead of the full $200,000, reflecting the underinsurance penalty due to not meeting the coinsurance requirement.
   • One additional reminder is that once that amount is calculated, Steve's church would still owe its deductible which would compound the financial loss that they experience.
3. Coinsurance Penalty: Under-insuring a property triggers a coinsurance penalty, where the church insurance company reduces the claim payment proportionally to the shortfall in coverage. This penalty underscores the importance of ensuring that the insured value meets or exceeds the coinsurance requirement at an absolute minimum.

Why Getting Coinsurance Right Matters

For churches like Steve's in Texas, where property values can vary significantly depending on location and other factors, understanding coinsurance is important for several reasons. Especially given the need to evaluate your church insurance coverage due to the current budget constraints.

• Financial Protection: Having adequate coverage in place can limit the financial risk that a church has to common church insurance claims like hail. Making sure that the church can recover swiftly from unexpected financial losses without shouldering a disproportionate financial burden is wildly important for nonprofit organizations like churches and their related organizations.
• Compliance with Policy Requirements: By insurance limits meeting coinsurance requirements on your policies, churches can avoid those penalties described to Steve and make sure that claims are settled fairly and promptly. When your church is in the midst of a property coverage claim, no one wants to fight about whether sufficient coverage was in place.
• Periodic Review: As property values change over time, especially in dynamic areas like Texas, churches should periodically review their insurance policies to adjust coverage levels accordingly. Most people like Steve have long thought it was to make sure that additional property coverages were not needed. But this review to make sure that suitable coverage levels are in place for coinsurance means that they remain adequately protected against inflation and rising construction costs.

How An Experienced Church Insurance Agent Can Help

Steve said it out loud during our conversation, he didn't know about any of these limits of insurance before he called us. He just knew that their budget could not handle the sizable increase in the insurance costs. And when thinking about all of the different types of insurance available to churches, his eyes started to glaze.

The good news is that an experienced insurance agent can guide churches through the nuances of coinsurance and other policy provisions. The key is to work with an expert in church insurance policies who can help you understand coverage options that you truly need, and what the potential risks are for the various choices you make.

Three Key Ways An Experienced Church Insurance Agent Shines

• Assessment and Evaluation: An agent can help churches accurately assess the value of their properties and determine the appropriate coverage levels to meet coinsurance requirements.
• Policy Customization: Tailoring insurance policies to the specific needs of churches. They can help you take into account unique risks and financial considerations of potential situations.
• Education and Support: Providing ongoing support and education to church leaders and administrators on insurance matters. This helps church leaders like Steve to understand the risks in churches and how it applies to their specific situation.

Steven now knows that coinsurance is more than just a policy requirement; it's a safeguard that ensures churches in Texas are adequately protected against unforeseen events. By understanding coinsurance and working closely with a trusted insurance agent like those at Insurance For Texans, churches can confidently navigate their insurance needs and protect what matters most to their community.

True Texas Church Insurance is a customizable plan to help your church navigate understanding what coverage is essential for basic policies, as well as any additional coverage that should be considered. Our experienced church insurance specialists can help you avoid coinsurance penalties as well as navigating your insurance options.

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