Coinsurance is the clause that catches churches. It does not reduce what you receive on a total loss beyond your limit, and it is invisible in good years, but on a partial loss at an underinsured building it can reduce the payment by a meaningful percentage at precisely the moment the congregation needs the money.
Historic churches are unusually exposed to it, because historic buildings are the ones most likely to be undervalued.
How coinsurance works
A coinsurance clause requires you to insure the building to a stated percentage of its replacement cost, commonly eighty, ninety or one hundred percent. If you do, partial losses are paid in full up to the limit. If you do not, the insurer pays only the proportion of the loss that your actual limit bears to the required amount.
Suppose a building would cost five million to replace, the policy requires eighty percent, so four million of insurance, and the church carries three million. On a partial loss the insurer pays three quarters of it, because three million is three quarters of the four million required. On a one hundred thousand dollar fire that is seventy five thousand, and the church funds the rest.
The penalty applies even though the loss was nowhere near the limit. That is the part churches find surprising.
Agreed value
An agreed value endorsement suspends the coinsurance clause. The insurer and the church agree in advance, usually on the basis of a signed statement of values, that the stated amount is acceptable. If a partial loss occurs, there is no proportional reduction.
Churches of real size frequently carry this. Park Street Church in Boston, to take a well known example of a large historic congregation, carries agreed value on its property program. For a building where valuation is genuinely uncertain, it converts an unquantified risk into a known one.
Do you know whether you have a coinsurance clause?
It is on the declarations page as a percentage next to each building. We will check it against your statement of values. Request a free church risk assessment or call 978.712.0111.
What it costs and what it requires
Agreed value is not usually expensive on its own. What it requires is a credible, current statement of values, because the insurer is agreeing to your number and will want to see how you arrived at it. Churches that have not valued their buildings properly often cannot get it, which is itself a useful signal about where they stand.
The practical sequence is therefore: get a proper valuation, submit a signed statement of values, request agreed value, and review the figure every two to three years so the agreement does not go stale.
Questions trustees ask
Does coinsurance affect a total loss?
On a total loss you receive your limit, so the clause does not reduce that further. The exposure is on partial losses, which are far more common.
Our building is insured for what we paid for it. Is that enough?
Almost certainly not. Replacement cost and market or historical cost are unrelated numbers, and on an older church the gap is usually large.
Can we just raise the limit instead?
You can, and it helps, but it only works if the limit genuinely meets the required percentage. Agreed value removes the need to be right about that.
How do we find the coinsurance percentage?
It appears on the property declarations next to each scheduled building, usually as 80%, 90% or 100%. If an agreed value endorsement applies it will be listed in the forms schedule.
Not ready for a full review? Start with our church insurance checklist, a short list of the coverages and limits worth confirming on your current policy before you talk to anyone.
If you would like a second opinion on whether your property valuation and policy terms is properly structured for insurance purposes, contact us for a free church risk assessment.
Contact Hale Street Insurance at 978.712.0111 or [email protected] for a free church insurance review. You can also visit our church insurance page or request a quote to get started.
Jake Lubinski is the founder of Hale Street Insurance and a licensed insurance broker with years of church board and stewardship experience. Based in Boxford, MA he works with churches throughout Massachusetts and the US to build insurance and risk programs designed around how ministry actually operates. Reach Jake at [email protected] or 978.712.0111.
Related reading: Replacement Cost vs Functional Replacement | Valuing Historic Church Structures | Church Property Insurance | How to Run a Church Insurance RFP
