Protect your Church with Pastor Key Person Insurance

Pastors need life insurance to protect both their church family as well as their immediate family. Many small congregations do not offer key person life insurance or personal coverage within their standard benefit package.

Therefore, these two different needs are usually addressed by purchasing two policies simultaneously in the individual marketplace.

We would like to discuss planning strategies to protect your church with pastor key person life insurance along with personal life insurance protection

 

Pastor Key Person Life Insurance

Key person is also referred to as key man life insurance, and is a policy that provides the capital needed to allow the surviving members to keep the church running by paying employees and making loan payments.

Most church members would be devastated if a pastor should suddenly pass away. The church would also be adversely affected by lower attendance and smaller donations.

This problem can easily be solved by the having the church purchase a key person life insurance policy.

How a Key Person Life Insurance Helps a Church

Successor Pastor– Finding an adequate replacement for a dynamic minister who suddenly dies takes a great deal of time and effort. Key person coverage allows time for the church to conduct a proper search for the pastor’s successor.
Day to Day Operations– Key person life insurance is simply a life insurance policy on the pastor naming the church as a beneficiaryDeath benefits provided by this type of policy provide money to allow the church to survive not only the tragic loss of a beloved pastor but fund church operations until they could rebound from the less attendance and lost giving. The premiums are paid by the church, and if the minister dies the church becomes the recipient of the death benefits.
Loan Protection– Banks feels more comfortable making or renewing your loan when a collateral assignment is in place on a key man policy. A church is adding a new location, and is borrowing $3 million to finance the project. The bank providing the financing may require the church to secure $3 million key person policy as collateral assurance to protect the loan. The key person policy is purchased by church on the life of the pastor. The church is the policy owner, beneficiary and premium payer.

How Much Key Person Life does our Pastor Require?

The amount of coverage needed when applying for key person life insurance depends on both the church’s ongoing annual income of the and amount of outstanding debt.

Remember, it can take many years to financially recover from the loss of a dynamic minister. So, coverage is often purchased based on a percentage of the church’s current annual income and debt load.

Insurance companies publish key person life insurance guidelines and typically allow a death benefit of 70% of income and debt.

Key Person Life Coverage Pastor Personal Life Insurance Policy

Next, a church should also consider a separate life insurance policy for the pastor in addition to key person life insurance.

Personal policies protect the pastor’s family obligations by permitting the minister to own the policy and name a spouse and children as the beneficiaries. This policy can be underwritten at he same time, but it is separate policy from the key person policy.

Keep in mind, the church should also 1099 or W-2 the pastor for the premium to eliminate the possible taxation of the death benefit to the beneficiary

How much Personal Insurance does our Pastor Need?

First, pastors should consider the needs of their immediate family. Many experts recommend 5-7 x’s a minister’s annual salary as an adequate amount of life insurance.

However, the amount of life insurance a minister requires will depend on their individual financial situation.

It is prudent for pastors to ask a few basic questions to understand their unique needs for life insurance.

  • How much financial strain will your death cause to your family?
  • Does you spouse work outside the church?
  • Does the church have any group life insurance available for its ministers?
  • Do you have a parsonage allowance or do you need to pay off your mortgage?

Types of Key Person & Personal Life Insurance

Key person and personal life insurance is often written for pastors as a term life policy for a period of 10, 20, or 30 years.

Some churches also elect more expensive permanent life insurance coverage, such as guaranteed universal life insurance and whole life policy’s, which grow a cash value within the policy, and allow the church to retain ownership of these funds.

Since, you are applying for separate polices a combination strategy is also popular when coverage requirements for the church differ from the pastor’ personal needs.

How to Apply for Key Person and Personal Insurance

Key person and personal life insurance policies are medically underwritten, so it is important when insuring a new minister to check into whether he or she can  qualify for coverage. The underwriting process can take between 3-4 weeks depending on the details of the pastor’s medical history.

Let us help your church evaluate whether you have a need for this type of protection for your pastor. We can look at your church’s financial condition to help determine the best direction for your congregation to pursue.

Our goal is to find the best life insurance policy for your pastor’s key person and personal coverage.

You can compare affordable term life insurance and permanent life insurance quotes for your minister in minutes using “Instant Life Insurance Quote”.

Please feel free to call us with any questions 1-877-249-1358.

Eric Van Haaften, LUTCF is the president of Affordable Life USA. We are a nationally licensed life insurance agency focused on finding our clients custom planning solutions at excellent prices. 1-877-249-1358. eric@affordablelifeusa.com