We’ve all been there. You’re on the phone with a representative from your insurance company. They are saying a lot of things you just don’t understand. Deductibles? Replacement? Actual Cash Value? What do these words mean and how do they affect your ministry?
Don’t worry, Adventist Risk Management, Inc. (ARM) is here to help. Here are five of the most commonly misunderstood terms in the world of insurance.
1. Insurance
Although it seems a bit basic, it’s important to understand the role of insurance. Unfortunately, many people have the wrong understanding and view insurance as a maintenance policy or a way to finance a new property. Insurance is designed to cover a sudden and accidental loss.Insurance is a contractual relationship that exists when one party (the insurer), for a monetary amount (the premium), agrees to make whole another party (the insured) for loss to a specified subject (the risk) caused by designated contingencies (hazards or perils).
In other words, insurance is the backup. Although you’ve done everything on your end as a risk manager, hazards can still come your way. Your insurance coverage can help you recover from losses that occurred due to specific perils within the parameters of the policy.
2. Actual Cash Value (ACV)
“In property and auto physical damage insurance, actual cash value (ACV) is one of several possible methods of establishing the value of an insured property to determine the amount the insurer will pay in the event of loss,” says David Fournier, ARM’s NAD regional manager.ACV refers to the actual value of the property on the date it was lost or damaged. This valuation is important because it is the amount your insurance company will pay you for the loss. Determining this value is typically calculated in three ways:
- The cost to repair or replace the damaged property, minus depreciation,
- The damaged property’s “fair market value,”
- Using the “broad evidence rule,” which calls for considering all relevant proof of the value of the damaged property.
3. Replacement
The preferred (and recommended by church policy) method of establishing the value of an insured property, and determining how much the insurer will pay if there is a loss. Replacement is the cost to replace the damaged property with similar materials and quality, without any deduction for depreciation up to the values scheduled on the insurance policy.In simpler terms, it’s looking at the cost of rebuilding your property with different materials, but the same quality. The result should be replacement, with the property being restored up to the values scheduled on the insurance policy.
4. Insurance Agent
An insurance agent can be placed under the umbrella called “Producers” (the middleman between you and the insurer). Within Adventist Risk Management the individuals providing this role are our Account Executives.An insurance agent is considered an insurance professional that serves as an intermediary between the insurance company and you, the insured. You can think of this person as your direct connection to your insurance company.
5. Deductible
A deductible is a monetary amount the insured or member is responsible for paying before insurance begins to pay.Let’s say, for example, your policy deductible is $1,500. That means in the event of a covered loss you are responsible for the first $1,500, and then the insurance coverage will respond above that amount.
Fitting Risk Management Into Your Ministry
Now that you have the basics, it’s important to know that you’re a risk manager. You take preventative steps to keep an incident from happening. When something bad occurs, you attempt to stop or mitigate the loss from expanding. Risks are present in almost any situation, whether it is a natural disaster or a small accident. That’s why it’s important to practice risk management first, confident in your insurance as a backup. Insurance and risk management work together to rebuild to the whole.To learn more about being a risk manager, check out our Safety Officer resources.
