Key man insurance for pastors and churches

By Michael Gray

MEG Financial


This is a real life key man insurance case that we worked. The names of the insured and church have been changed to protect their identities.

We routinely receive key man life insurance inquiries and requests on our website from pastors, ministers and church leaders throughout the country. In most cases, the church is undertaking a building expansion program and is borrowing money to finance the deal. The bank, lender or Small Business Administration that is making the loan, is requiring the church to secure key man insurance to protect the loan.

Recently, we received such a request from Pastor Reynolds in California. His church, Grace Methodist Church, was expanding and purchasing a summer camp facility for their youth program and they were borrowing $3.3 million to fund the deal.

The lender, as part of the package, required that $2 million of key man life insurance be purchased by Grace Methodist on the life of Pastor Reynolds. Pastor Reynolds, age 50, was in excellent health and came to us looking to purchase a key man life insurance policy on his life for $2 million.

We reviewed his options and determined that since the loan was for 20 years that we should consider a 20-year level term policy. We quickly identified the insurance company that was going to offer the most competitive rate and proceeded to apply for the key man policy.

On the application, we named Grace Methodist Church the policy owner and beneficiary and premium payer. Pastor Reynolds completed the application and required insurance exam, and the case was submitted to the insurance company for approval.

In a few short weeks, the policy was approved as applied. We were able to secure a 20-year level key man insurance policy for $2 million on the life of Pastor Reynolds that allowed Grace Methodist to finalize the $3.3 million loan and purchase the summer camp and initiate the expansion project.

If you are a pastor, minister or church leader and your church is considering a building project or expansion, key man insurance is a great way to provide collateral assurance to a bank or lender. The cost is usually inexpensive, and it is relatively easy to implement.