Gulfshore Insurance > Gulfshore Blog > COVID-19 > Insurance for Loss of Income?

Insurance for Loss of Income?Raise your hand if you ever thought that churches across the country would be shuttered and pastors everywhere would be relying solely on live-streaming their services to connect with members…

Me neither.

This has a lot of churches and other non-profit organizations questioning how these forced (or otherwise strongly encouraged) shutdowns will affect their tithes, donations and other revenue that is dependent on donors.  After all, if the doors aren’t open, will giving be forgotten?  Second, if the church had to shut its doors through no fault of its own, is the loss of income covered under the insurance policy, like a closure due to a fire or hurricane? To answer this question, let’s take a look at Business Income Insurance – what’s it’s intended for, what it covers and how to best estimate how much is needed.

The Intent of Business Income Insurance

Business Interruption (BI) Insurance, also known as Business Income Insurance, is a type of insurance that covers a business for the reduction in revenue after they suffer a loss.  The intent is to carry the business through the time of restoration or rebuilding after a disaster. After a major loss, rebuilding can take several months, and this is after waiting on things like adjuster investigation and permitting.

The key to triggering coverage for a business income loss can come from a couple of places (1) physical damage to a covered property that forces a closure or (2) a civil authority forces a location or whole area to close.  The caveat to a civil authority closure is that there still needs to be physical damage to property, maybe not even owned by the church, that makes the closure necessary. For example, after a major hurricane, many streets are impassable and power lines are down which forces road closures.  There may not be anything wrong with your insured building, but people just aren’t allowed to get to you.  Whether it’s damage to your building or surrounding property that forces a shutdown, property damage by a covered item is a requirement.

This leads us to our current pandemic situation.  Will insurance companies pay for lost revenue due to forced closures?  The intent and language of the insurance policies say no.  This doesn’t mean that you can’t file a claim, or that the policies won’t be challenged in the courtroom, but business income insurance policies are not intended to cover for quarantine due to a global pandemic.

Indispensable Protection

What our current pandemic situation has taught us, however, is how important the coverage is if we were to find ourselves out of business due to a physical loss, like a hurricane.  Business Income insurance can include things like payment of ordinary payroll for all staff members, payment of extra expenses (for things like renting offsite space for services or preschool education), or payment of other ongoing expenses like mortgages or leases.

Business Income Worksheets Calculate the Need

Determining the appropriate amount of BI for a church is unique to its needs and exposures.  The need will change if the following are present: tuition-based preschool, thrift stores, fee-based counseling services, summer camps, concerts, or other revenue generating events. Fortunately, similarities with other churches have allowed insurance carriers to create a reliable “benchmark” for churches and religious institutions.  The benchmark BI limit for churches is 80% of total revenue (assuming 12-month value and including 100% payroll benefit).

There are various BI worksheets available to help calculate an appropriate value of business income necessary to insure.  Click here for a free BI worksheet designed specifically for churches.

To view our complete risk management library of articles for churches and non-profits, click here.

John Keller, CRM ARM CIC AAI is Client Advisor & Risk Manager at Gulfshore Insurance specializing in non-profit and religious organizations. John works with a wide range of business clients to deliver strategic risk analysis and guidance. Comments and questions are welcome at jkeller@gulfshoreinsurance.com