There are many churches in Texas that have been around for decades. Some of them are even more than a century old. These old church buildings are treasures of this great state. With all of the turmoil in church property insurance policies, these historic churches that are so precious are finding it harder and harder to obtain new property coverage when they go looking for it.
We were recently contacted by an historic church in Central Texas that has been around for more than 100 years. It has beautiful stained glass windows, hand-carved wooden pews, and stone walls that have stood through storms and time. The congregation loved their church and worked hard to take care of it.
When their insurance company notified them on non-renewing their policy, they weren't sure what to do. The church had never filed a large claim, so they did not understand why this was happening. Prior to contacting us, they called around for new coverage and spoke with some people who didn't understand the historical marker in front of their church. When they finally received a quote, the paperwork caught their attention. The policy said it had functional replacement cost.
The finance team had no idea what that meant. Would their church still be protected if something happened? Would they be able to rebuild with the same beautiful materials if a storm damaged their building? They needed answers before making a decision. That's how they found us.
Functional Replacement Cost Is An Important Distinction
Most Texas churches are looking for traditional replacement cost coverage. Mortgage holders generally require it and we all know that it is the gold standard of building coverage. So what does that word "functional" mean?
When a church has functional replacement cost coverage, it means the insurance company will pay to rebuild or repair the building using modern materials that serve the same function as the old ones. This does not mean the church will look the same as before.
For example, if a church has hand-carved wooden pews, the insurance might only pay for factory-made pews because they serve the same purpose. Plaster walls were really popular a century ago, and are not today. It is likely you will only receive drywall instead.
The Central Texas church worried about this. Their building had been part of their community for over a century, and they did not want to lose the history that made it special.
It Helps Keep Insurance Costs Lower
One reason insurance carriers use functional replacement cost is to keep the cost of premiums lower. Rebuilding a historic church using rare materials and highly specialized labor that is extremely expensive. If a church wants full historic replacement coverage, the additional premium is substantial.
The Central Texas church liked that this policy had a lower premium. They needed to save money, but the church leaders also needed to understand what they were giving up. If something happened to their building, would they be okay with using modern construction materials instead of original ones if their church building needed to be replaced due to a catastrophic claim?
Certain Architectural Features May Not Be Covered
Historic churches often have unique design elements like stained glass windows, carved wooden doors, or bell towers. A functional replacement cost policy may not fully cover these special features.
The Central Texas church had beautiful stained glass windows that had been in place for generations. When they checked the details of their quote, they saw that their policy also had a sublimit for stained glass. This meant if a storm resulted in broken windows, the insurance would only pay a set amount. This amount might not be enough to replace them.
Building Codes Can Affect Rebuilding Costs
Old churches were built before modern safety codes existed. If a building is damaged, repairs must meet today’s rules, which can add extra expenses for repairs even if there is not substantial damage.
The finance team of the Central Texas church learned that if a fire damaged their building, they would have to upgrade things like electrical wiring and fire sprinklers. Functional replacement cost can limit coverage for these extra costs even if the policy includes ordinance and law coverage. It is important to understand if the church might have to pay out of pocket the building construction to meet new code requirements.
Some Insurers May Offer Full Historic Replacement Options
Not every insurance policy follows the functional replacement cost model. Some companies will offer full historic replacement coverage, which means they would pay to restore the church with original materials and craftsmanship. But that list of insurance companies is very limited in Texas and comes with a hefty price tag.
The Central Texas church found that this option was available, but it was much more expensive. They had to decide if keeping their building exactly the way it was mattered enough to pay higher premiums.
Finding the Right Solution for Your Church
Understanding how church insurance policies work helps churches make the best decision for their property damage coverage. Functional replacement cost can save money on premiums, but it also means giving up full historic restoration in case of a loss.
Many churches are now looking at Risk Purchasing Groups to lower their insurance costs. These groups help churches spread risk and get better pricing, but they usually include functional replacement cost instead of full restoration coverage. Churches need to read the details before joining one of these programs.
Work with a Church Insurance Specialist to Get the Right Coverage
Church insurance can be confusing, especially for historic buildings. An experienced church insurance specialist can help explain different coverage options and work to find a plan that fits your church’s needs.
The Central Texas church worked with one of our specialists to compare their options. In the end, they chose functional replacement cost because they needed affordable coverage. But they also made sure to add endorsements that protected some of their most valuable historic features of their beloved church.
If your church is looking for the best insurance option, it is important to understand how functional replacement cost affects your coverage. True Texas Church insurance is a program that helps churches across Texas find the right church insurance coverage based on their unique ministries and needs.
Click the button below to connect with a church insurance specialist and find out what coverage makes sense for your church.