Nonprofit Insurance: What's Needed?

Nonprofit organisations face a variety of risks and may require several types of insurance coverage to protect themselves. The types of insurance a nonprofit should carry depend on its unique needs, including the type of business, number of employees, and other factors. Nonprofits often operate on shoestring budgets, so a single large and unexpected expense could lead to financial ruin. Therefore, it is crucial for nonprofits to assess their potential risks and obtain appropriate insurance coverage.

General liability insurance

Third-party property damage is also covered by general liability insurance. This includes situations where a client or visitor's property is damaged or lost while in the nonprofit's care. The insurance can help pay for repair or replacement of the item, as well as any legal costs that may arise from a property damage lawsuit.

Additionally, general liability insurance covers advertising injuries, such as accidental defamation, libel, slander, or copyright infringement. This is particularly important for nonprofits that use promotional materials or advertising campaigns, as it protects them from potential lawsuits arising from these activities.

The cost of general liability insurance for nonprofits can vary depending on their specific risks and needs. Most nonprofits pay a median of $45 per month for this type of insurance. It is recommended to consult with a qualified insurance broker or agent to determine the appropriate coverage for your nonprofit organization.

Commercial property insurance

When considering commercial property insurance, it is important to assess the potential risks that could impact the nonprofit's property. These risks may include fire, vandalism, natural disasters, theft, or other unforeseen events. The insurance should cover the cost of repairing or replacing the damaged or lost items, as well as any associated legal costs that may arise.

In addition to covering physical assets, commercial property insurance can also provide protection for intangible assets, such as data and electronic information. With the increasing reliance on technology, it is important for nonprofits to safeguard their digital assets. Data breach insurance, a form of cyber liability insurance, can provide financial protection in the event of a data breach or other cyber threats.

Another important aspect of commercial property insurance is the coverage of business interruptions. Business income insurance, also known as business interruption coverage, helps offset lost net income when a business is forced to temporarily close due to a covered peril, such as a fire or storm. This type of insurance ensures that the nonprofit can continue to cover its day-to-day expenses and maintain operations during the recovery period.

When selecting a commercial property insurance policy, it is essential to carefully review the terms and conditions. Nonprofits should pay close attention to their deductible, which is the amount they will need to pay out of pocket before the insurance coverage kicks in. Additionally, understanding what types of losses or property damage are excluded from the policy is crucial. For example, flood insurance or theft coverage may need to be purchased separately, depending on the specific policy.

By investing in commercial property insurance, nonprofits can gain peace of mind knowing that their physical and digital assets are protected. This type of insurance helps safeguard their operations, ensuring that they can continue their important work without being burdened by unexpected financial losses due to property damage or business interruptions.

Directors and officers insurance

Directors and officers (D&O) insurance is essential for protecting a nonprofit's board of directors and officers, who are often volunteers, from personal liability in the event of a lawsuit against the organisation. D&O insurance covers the cost of defending the directors and officers, as well as any resulting damages.

D&O insurance is designed to protect the organisation, its mission, and its directors and officers if they are sued by vendors, current or former employees, donors, beneficiaries, or other parties. Suits can claim actual or alleged errors, misleading statements, breach of duty, or misuse of funds or authority. Without D&O insurance, the personal assets of board members are at risk in defending against these suits.

D&O insurance typically covers defence costs, settlements, and judgments associated with claims against nonprofit organisations. It also helps protect the personal assets of the organisation's directors and board members.

D&O insurance is especially important for nonprofits as they are twice as likely to file D&O claims than public and private companies. Nonprofit board members may be targeted in lawsuits alleging wrongful management decisions and required to defend themselves, even with state and federal volunteer protection laws in place.

When choosing a D&O insurance policy, it is important to understand what types of claims are and are not covered. For example, typical exclusions include damages arising from criminal or fraudulent behaviour, and claims brought by one director against another. However, it is important to ensure that the policy covers employment-related claims, which are the most common type of claim filed against directors and officers of nonprofits.

The cost of D&O insurance will depend on the size and nature of the nonprofit organisation, as well as the desired level of coverage. Basic D&O insurance for a small nonprofit organisation with no employees can cost as little as $690 per year, while more comprehensive coverage for larger organisations can cost upwards of $1 million per claim.

Workers' compensation insurance

The cost of workers' compensation insurance for nonprofits is calculated based on specific rates per $100 of the organisation's payroll. Several factors influence this calculation, including the type of work performed by employees, the experience modification rate (claims history), and the payroll amount. The National Council on Compensation Insurance (NCCI) uses nearly 800 class codes to categorise employees based on their job duties, which helps insurance companies determine pricing.

It's important to note that workers' compensation insurance requirements can vary from state to state. For example, in Pennsylvania, every nonprofit, regardless of the number of employees, must carry this type of insurance. In contrast, Alabama nonprofits are only required to have workers' compensation insurance when they employ five or more people. Therefore, it's essential to review the specific laws and regulations in your state to ensure compliance.

Additionally, the coverage of volunteers under workers' compensation insurance can differ depending on the state and the duration of volunteer retention. In some states, nonprofits must purchase coverage through a monopolistic workers' compensation state fund, which may exclude employer's liability insurance. However, this can be supplemented with stop-gap coverage from a private insurance company.

Cyber liability insurance

Data breaches, denial-of-service attacks, and phishing scams are some of the methods cybercriminals use to steal and extort data. The consequences of such attacks can be severe and include the loss of critical data, systems, and a damaged reputation. Restoring these losses and responding to lawsuits resulting from breaches can be costly and time-consuming, potentially diverting much-needed funds and resources away from the nonprofit's core mission.

When considering cyber liability insurance, it is essential to understand the specific risks your nonprofit faces and the types of coverage available. Not all cyber insurance policies are created equal, and it is important to work with a knowledgeable broker or agent who understands the unique needs of your organization. They can help you navigate the complexities and nuances of cyber risk and find a policy that adequately covers your nonprofit's exposures.

Additionally, it is crucial to assess your nonprofit's data risks by taking inventory of the data you collect, where it is stored, and how it is protected. This will help you identify vulnerabilities and implement necessary security measures to mitigate the risk of a data breach.

Frequently asked questions