As I interact with private school leaders, church leaders, business administrators and risk managers today, I am often asked which risk I feel is the worst for today's religious organization 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 that protects those who produce the income and the possible income loss, as well as the person who may not be the main income producer but who is a key person in helping the family function and survive today. This risk can affect an organization at the most critical times of its ministry, and it may 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 ratio
• 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 very mature religious organization. The damage is not limited to just the weak or new religious organizations.

To review your possible risk, 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 painfully dealt 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 may cover one year or more, they should consider the project cost for key person benefit for the construction period, then review the resulting debt load and the years 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. 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:  There is provided housing, so these questions presented must be provided with 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, yet they 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, 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 that can 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 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 prevent this possible risk can really make a big difference.

Related to this area are raised questions about how to intelligently provide 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 organization
• 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