Business Interruption cover as it applies to a church
If you're hiring out your church building to generate income or you'd have to spend out to rent space if your building was out of action for a period, hopefully your insurance provider has recommended Business Interruption cover (BI) to protect you from these costs and losses that are outside of your control.
While the building and its contents may be adequately covered for replacement or repair, BI offers a robust layer of protection to your finances for a very specific purpose and is often overlooked.
So, what is BI Cover?
Business Interruption cover protects your organisation against loss of income following material damage to your buildings – whether you own them or not. It also provides a reserve fund for some increased costs which you may incur if you're unable to access your premises for a time.
How does it work in practice?
The first thing to say is that each church’s requirements will be different so it’s important to seek professional advice at the outset. However, here's a real-life example from an insurance review we performed for a large Newfrontiers church in Dorset...
Now, on the face of it you probably wouldn’t expect a church to have a Business Interruption exposure but on looking closely at their situation we determined that cover was appropriate. They had a new building which took 3 years to build and it’s theirs for a peppercorn rent. So, if there was a major incident at the premises, it could perceivably take 3 years to get back up and running. In the meantime, they'd also have increased rental costs to move their worship elsewhere.
We chatted BI through when we reviewed their cover but they initially decided against it. Having gone away and looked at their income and potential rental costs they quickly came back to us and showed us the figures, requesting that we added BI in.
At an estimated cost of £100,000 pa to rent an alternative space to house their church, offices and meetings plus £80,000 pa in lost hire revenue from conferencing, they'd worked out that a 3-year loss could be in the region of £540,000.
Would your church’s funds be able to withstand your unexpected costs and losses over a sustained period if anything happened to you?
Not just for major catastrophes
Of course the benefits are easy to see on the cases where the potential losses are huge but BI also covers smaller-scale incidents - perhaps a gas leak in a neighbouring property results in a denial of access to your church hall for a day as surrounding properties are evacuated for safety reasons. How would you recoup the rental income lost if you had groups booked in even during this short period of time?
In another example, perhaps you're operating the local foodbank and you're forced to purchase stock that is usually donated so you can meet customer demand while your storage facility is temporarily inaccessible.
Extra benefits of taking cover
Business Interruption cover doesn’t stop there. During a prolonged period of enforced closure, you might not have any revenue coming in but you would want to continue paying any staff wages so they're not left out of pocket or tempted to leave in search of other work. BI cover steps in to help here too by covering salary payments.
At the end of the day it's for you to decide on the value of having the protection but at least now you're aware that Business Interruption exists and how it could help you through an otherwise stressful time.
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