A policy may show a large overall limit on the declarations page. But that does not mean every type of loss is covered up to that full amount. A sublimit creates a smaller cap for certain situations. That can make a big difference when you file a claim.
The Water Loss at the Amarillo Church
Last year, a church in Amarillo experienced a major plumbing failure that flooded parts of their building and left behind hundreds of thousands of dollars worth of water damage. When they called a contractor to come access the damage, he gave them a repair estimate for $175,000. The church’s leaders felt confident that their property policy would cover that amount. They knew that they had bought a policy with a $2 million limit.
Unfortunately, that was not the case. They soon discovered that their policy had a sublimit that capped water damage from plumbing failures at $50,000. This left them with an unexpected bill of $125,000. That money was going to have to come out of their church’s budget and they would have to cut back on funding their ministry activities until they could pay it off.
The church’s leaders learned a hard lesson. Even though the church had $2 million in property coverage, they did not realize that there was a cap on water damage. Sublimits are smaller limits of coverage on particular types of damage or property within a larger policy limit.
Policy Limit vs. Sublimit
The easiest way to understand a sublimit is to think of it as a smaller limit inside a larger one.
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Policy Limit: the maximum amount available for a broader category of coverage.
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Policy Sublimit: a smaller maximum coverage amount for one specific loss or type of property.
For example, a commercial property policy might have:
- $2 million in building coverage
- $100,000 for business personal property
- $25,000 for water backup
- $10,000 for valuable papers
- $5,000 for certain outdoor property
The policy may provide millions of dollars in total protection while still placing much smaller caps on certain types of losses.
Why Do Insurance Companies Use Sublimits?
Insurance companies use sublimits to control how much they will pay for risks that may be more expensive, more frequent, or harder to insure.
They may apply to things like:
- Water damage
- Theft
- Signs
- Outdoor property
- Computers or electronics
- Valuable records
- Certain equipment
- Debris removal
- Sewer or drain backup
- Other specialized exposures
The exact sublimits vary by policy and insurance company.
Why Sublimits Matter When Comparing Policies
Two insurance policies can show the same overall property limit and still provide very different protection. For example, one policy may offer $1 million in property coverage with a $100,000 water sublimit. Another may have the same $1 million property limit but only $25,000 available for that same type of loss.
On the surface, those policies can look almost identical, but when you dig into the details they are not. The smaller limits inside the policy determine how much money is actually available to cover claims.
Sometimes an insurance company will allow you to increase a sublimit through an endorsement. In other cases, the sublimit is fixed. This is why it is important to understand the sublimits before you choose a policy. A $10,000 sublimit may be perfectly reasonable for one church and completely inadequate for another.
Don’t just compare the big numbers on the front page. You also need to understand the smaller limits that may apply to the losses your church is most likely to face.
Evaluating Your Risk Exposure
Sublimits are easy to miss because they are often buried deeper in the policy than the main coverage limits.
Through our True Texas Church Insurance program, we review those details with you before a claim forces you to learn them the hard way. We look for smaller limits that could create a large out-of-pocket expense and explain where your church may need more protection.
Our goal is to make sure your insurance policy matches how your church operates.