Insurance for Nonprofits
Although nonprofits are structured differently and can have different goals than for-profit businesses, they still face many of the same risks as profit-generating enterprises. That’s why insurance for nonprofits is so important.
If you operate a nonprofit, you need nonprofit insurance to protect your assets and support your operation in times of need.
Recommended: Get the protection you need for your nonprofit from the small business insurance experts at Tivly.
What Types of Insurance Does a Nonprofit Organization Need?
In the nonprofit sector, there are many hats that leaders wear on a daily basis. Juggling a nonprofit organization's budget and engaging volunteers are just a couple of the responsibilities that come with the job.
A study by worldwide risk and insurance advisor Crystal and Co. found that less than .25% of the majority of nonprofits' annual revenue is allocated to insurance coverage that would protect them in the event of a lawsuit. This is a troubling statistic, as lawsuits are increasingly common against nonprofits. Defense costs can be prohibitive, even for well-funded organizations. And if a nonprofit is ordered to pay damages, the financial consequences can be devastating.
There are a number of different types of nonprofit insurance, including property and casualty, liability, directors and officers, fiduciary liability, and more. Each type of coverage can protect the organization from a different type of risk.
Here’s a look at some of the most popular types of insurance for nonprofits. This nonprofit insurance overview can help you get a better idea of what types of insurance your nonprofit needs.
Once you understand the various types of insurance, it is important to work with an insurance broker who understands the specific needs of nonprofits and can help you find the right coverage for your organization.
General Liability Insurance
There are multiple ways that a nonprofit can be held liable for damages, even if you do your best to operate safely and carefully. General liability insurance protects your organization from a lot of these situations by covering legal costs and damages related to common liability claims.
For example, nonprofit liability insurance could cover:
- Bodily injury to third parties: Customers can sustain injuries on the grounds of your organization and sue for damages. For example, someone looking to adopt from a shelter could slip in a puddle and blame the shelter for their injuries.
- Property damage: Employees and/or volunteers can damage the property of third parties. A food bank could deliver a meal to someone and accidentally back over their fence. Professional liability insurance for nonprofits could cover the cost of the damages.
- Libel or slander: Your organization could be found liable for harming the reputation of a business or individual. Coverage for reputational harm is often included in general liability policies.
- Advertising injury: Sometimes, nonprofits infringe on copyrights without realizing they are doing it. If you are sued for injuries related to advertising, general liability insurance for nonprofits could cover your legal expenses.
Most for-profit businesses carry liability insurance because it provides basic coverage for a variety of different problems. This common type of business insurance is also included in a standard business owner's policy to offer complete protection of assets. Nonprofit liability insurance can provide similar benefits for your organization.
Directors and Officers Insurance for Nonprofits (D&O Insurance)
Directors and officers insurance policies provide protection to a company's directors and officers from personal financial losses in the event that they are sued for wrongful decisions or actions while in their corporate roles. The policy can also provide defense costs in the event of such a lawsuit.
D&O insurance is typically purchased by nonprofits who feel that their directors and officers are at risk of losing personal property as a result of lawsuits brought against the organization. The policy can provide peace of mind to the company's stakeholders, knowing that the individuals responsible for making important decisions are protected financially in the event of litigation.
There are a few different types of D&O policies, and each one provides different levels of coverage. Some policies will only cover directors and officers up to a certain dollar amount, while others will provide lifetime protection.
Workers’ Compensation Insurance
This type of insurance coverage protects nonprofit groups against employee claims in the event of a work-related injury. Workers' compensation covers medical expenses, lost wages, and other needs. Most states require businesses to carry workers’ compensation insurance, including nonprofit organizations.
Some of the things that workers’ comp nonprofit insurance can help with include:
- Medical expenses: The expenses for diagnosing and treating workplace injuries are typically covered by workers’ compensation policies.
- Lost wages: It can take time to recover from workplace injuries. Workers’ compensation insurance for nonprofits can pay employees the wages they are missing so that your nonprofit doesn’t have to cover the cost.
- Vocational rehab: Some injuries require rehabilitation treatment over weeks or months. The cost for such rehab is typically covered by workers’ compensation.
- Death benefits: If an employee dies from injuries resulting from a work-related accident, worker’s comp insurance for nonprofits will often pay for death benefits like funeral expenses.
The rules for workers’ comp coverage vary by state, so it’s important to check your state laws to ensure you are meeting the requirements for workers’ comp nonprofit insurance.
Commercial Property Insurance
Property insurance is another type of coverage that a nonprofit organization may choose to carry. Your nonprofit likely has property that could be damaged and expensive to repair or replace.
For example, an unexpected fire could destroy all of your office furniture, computer systems, and other supplies. Replacing all of that out of pocket would be prohibitively expensive. But if you had CPI covering fire damage, you could file a claim and get the money you need for replacements.
Commercial property insurance covers the building, including everything inside the building and outside the building. Things like furniture, documents, fencing, signs, inventory, and the property of others all fall under the umbrella of property insurance.
There are a variety of factors that can affect the cost of this type of insurance. For instance, if you are located in an area with high property crime rates or a high rate of natural disasters, your premiums will likely be higher. Even then, the cost of insurance is generally far less than the cost of replacing all of your commercial property in the event of a disaster.
Commercial Auto Insurance
If your organization uses cars, trucks, vans, or other vehicles as a course of operations, you need commercial auto insurance.
Nonprofit insurance for automobiles is similar to other types of car insurance and can cover things like personal injury protection, liability, damage, and theft. You can also get uninsured motorist coverage in case someone hits your vehicle that does not have insurance. There are even coverages like rental reimbursement and lease gap coverage for specific situations your nonprofit might find itself in.
It might be tempting to stick with your personal auto insurance if you are operating a small nonprofit. But if you are conducting a nonprofit business and get in an accident, the insurer could deny your claim if you are not carrying the proper personal injury and non-owned auto liability coverage.
For example, a nonprofit that transports the elderly to and from the grocery store will likely spend more time on the road than the average passenger vehicle and therefore be more at risk. That’s why commercial auto nonprofit insurance is priced differently than personal auto insurance.
Employment Practices Liability Insurance
Nonprofit organizations can benefit from employment practices liability coverage like any other business. This type of insurance covers a company for legal costs, judgments, and settlements resulting from wrongful employment practices.
This type of business insurance is important for companies with more than one employee, as even the best-managed organizations can be faced with allegations of wrongful termination, sexual harassment, discrimination, and other employment-related issues. EPLI policies can also provide coverage for breach of employment contract claims and wage and hour litigation.
Recommended: Visit our Low-Cost Insurance Review to find the ideal balance of affordability and coverage.
Other Types of Nonprofit Insurance
Some other types of nonprofit insurance that might be useful for your organization include:
- Directors and Officers Liability: Operating a nonprofit as a director or officer can pose additional risk. This type of insurance pays directly to directors and officers if they incur legal costs as part of their work.
- Professional Liability: If you work in a specific profession that carries unique risks, such as serving as an attorney for a nonprofit, you could benefit from industry-specific professional liability insurance. If you incur damages as a result of your advice or other professionally-related activities, this type of insurance can help cover those costs.
- Cyber Liability: This type of nonprofit insurance is becoming more popular in the digital age. If you experience a data breach and sensitive information gets out, such as the banking information of your clients or customers, you could be sued. Cyber liability helps cover the costs of these types of lawsuits.
- Fiduciary coverage: Fiduciary liability insurance protects nonprofit organizations against employees claiming the company mismanaged employee benefits plans and assets.
- Health insurance coverage: Health insurance is a type of insurance that covers the cost of medical treatments and procedures. It can help people pay for doctor visits, hospital stays, prescription drugs, and other medical expenses. Health insurance can also help people protect against large medical bills if they become ill or injured.
- Disability insurance coverage: Disability insurance is a policy that provides benefits to an individual who becomes disabled and is unable to work. The policy will typically provide a monthly benefit to the individual, which can be used to help cover living expenses.
- Umbrella Insurance: When a claim reaches the limit on an existing insurance policy (such as general liability, commercial auto, or employer’s liability insurance), umbrella insurance comes in to provide an additional layer of liability coverage.
Frequently Asked Questions
It depends. Most nonprofits need basics like general liability insurance and workers’ comp insurance, but there are many different types of insurance products out there. It’s best to speak to an insurance professional and get targeted advice based on the needs and risks of your organization. Loss control consultations will take into account your risk management and insurance needs while giving more insight into cost and policy language.
The amount of insurance you need depends on the types of risk associated with your nonprofit organization. The average cost of small business insurance typically ranges between $700 and $3,800 per year. Costs will vary depending on factors such as location, type of work, number of employees, types of nonprofit insurance policies, and more.
Some nonprofit insurance is mandatory, like workers' compensation insurance, when you have employees. Other types of nonprofit insurance aren't mandatory but they are highly recommended. It's generally better to pay a little now to avoid higher costs later if you are sued or lose most of your business property to an accident or disaster.
Because 501(c)(3) organizations have the same risk management insurance needs as the rest of the nonprofit sector faces, it's important to buy insurance for your nonprofit before negligent acts, cybercrime, computer fraud, management liability, and other problems arise.