As I interact with private school leaders, church leaders, business administrators and risk managers today, I am often asked what risk I feel is the worst for today's religious orgainzation to deal with.  If the engine is removed, how long will the train continue to move?  The key person risk stands out as it is really no different than the family who protects those who produce the income and the possible income loss they could be presented with today, as well as the one who may not be the main income producer but who is also a key person in making the family function and survive today. This risk can affect an organization at the most critical times of its ministry, and it can bring total destruction to the ministry because it is often the least prepared for or even thought of.  From what I have seen, when reviewing presented losses, key person insurance is as critical today as liability coverage. Both causes of loss can cause the demise of the organization in a very abrupt and painful manner.  For most organizations, this risk can be covered for just a few hundred dollars per year. The most critical times for this, though it is not limited to just these, for medium to large organizations and the fairly new organization, are:

• When dealing with large debt to income ratios 
• During a construction time
• During a new ministry time
• Large budget income and expense issues
• When there is provided housing

The loss of a key person in the religious organization, as it is moving forward, can kill momentum, cause people to leave in discouragement and withhold offerings, and cause issue after issue as the entity tries to deal with each increasing challenge. Some do not survive, even though they may have been a larger or a very mature religious organization. The damage is not limited to just the weak or new religious organizations.

To review your possible risks, here are the factors I review with our clients:

• Total debt to income ratio
• New construction time and cost
• Cost of new ministry programs
• Annual income and expenses figures, using an average reviewed loss, when presented from clients who have dealt painfully with from 25% to 30%  loss of income and attendance decrease 
• Is there provided housing or a housing allowance?

Example  1: For a mature organization dealing with a $1 to $5 million construction project that can cover one year or more, they should consider the project cost for key person benefit for the construction period, and then they should review the resulting debt load and the years it will take to cover possible income loss, usually 25% to 30% of income.

Example  2: For a religious organization dealing with a total debt that is equal to more than 50% of the annual income, the key person benefit should equal at least the 30% income loss protection plan for the debt period.

Example 3: A new organization that is trying to get off the ground and is just into the building phase should consider covering the construction and at least 25 % of income loss.

Example 4: Smaller organizations can realize a very painful loss, as each giving unit is very critical for the survival of the organization. They should review income and expense ratio, and the possible ministry time for the key person. The benefit should be in line with those items.

Example 5:  If there is provided housing, these questions presented must be provided answers. When would you have to ask the spouse and family to leave to make room for the next one?  What would they live on?  Where would you put the new family if the former family remains in the provided housing?  This can be a very embarrassing and trying time for a church to deal with if not carefully planned for in advance.

We offer two different plans: one is a specialized product that offers a benefit for a term of time only, while the other offers the added benefit of converting the funds invested for the protection into a retirement plan for the key person, if they survive the risk time. The last program offers two risk protection benefits in one. Both programs are very cost effectively priced to meet budget constraints of today, but still assist with this important risk management.

To add to this, the religious organization should encourage key persons to exercise and carefully care for their personal health factors since a healthy key person will be more efficient in their work and have less issues with people skills and personal life issues. The organization should also exercise care in review of work space quality, time off, variety, knowledge of equipment they work with, its maintenance, and the stress limits that they might place on them with possible organizational expectations--which may be very demanding and stressful.

Thus, a total risk review is important to assist you with bringing this important risk factor into a manageable position for today's culture. This risk can, if not properly cared for, present such a financial abyss that it can destroy the organization's minsitry effectiveness for years as it struggles many times for its very survival. I have seen some very strong organizations destroyed by this risk. The few dollars spent to protect this possible risk can really make a big difference.

Related to this areas are raised questions about how to intelligently provided for clergy and their staff in today's culture.  Click here to review that info on our site.  

Call us today to review your risk factors 

Phone (614) 899-6000 or toll free 1-877-471-7997 (for states KY, OH, WI, IN, MI)  

E-mail us dphelps@phelpsfinancial.com.  

Fax number 614-899-6022  

Here are the important items that are needed for our review.

• The current income and expense statement
• Total debt that the organization is dealing with
• If during a construction time send contruction amount and debt repayment data.
• Total giving units and average giving amount
• Name, postion and amount of total renumeration for the key person along with their date of birth.
• Statement of why you feel the person to be a key person in your orgainzation
• Does your organization have provided housing or offer a housing allowance
• Are you a current client and what is your US mail address. 

06/01/2005