Introduction to Nonprofit Insurance Programs
Operating a nonprofit is, in many regards, similar to running any for-profit business. As a business owner you must have a clear vision or mission, provide a service of value or which is in demand, hire the right people or volunteers, and operate with a focus of being successful, by whatever definition you wish to define success for your nonprofit. Like any business, nonprofits should have operational processes and protective measures in place to not only create a sustainable organization, but also to safeguard the organization, its board members, the employees, volunteers, and their donor base. These reasons are why obtaining insurance for nonprofit organizations is a smart business decision.
Nonprofits often work directly with the public, which means your organization is likely to be exposed to a variety of risks and liabilities. Participating in a nonprofit insurance program is one way to protect your organization from financial loss. Securing specialized insurance for nonprofits is a way of transferring risk away from your organization. Although it does not remove the risk or liabilities, it limits the financial impact of any insurable risk to the cost of your insurance premium and any deductibles or coinsurance.
Why Insurance for Your Nonprofit Organization is a Smart Idea
When you’re in the startup phase of your nonprofit, there are many requirements that need your attention and your funds. Securing your 501c(3) status, successfully filing your federal and state registrations for tax exemption, developing a website and marketing materials for fundraising and awareness building, and managing daily operations. At this stage it’s very easy to overlook investigating insurance for nonprofits and securing the appropriate level of coverage for your immediate, and future, needs. While there is never a bad time to enroll in a nonprofit insurance program, it’s a wiser decision to take care of this early on. Here are a few reasons why obtaining insurance for nonprofits is a smart business move.
Learn About Insurance for Nonprofit Organizations
- Introduction to Nonprofit Insurance Programs
- General Liability Insurance for Nonprofits
- Nonprofit Directors and Officers (D&O) Insurance
- Nonprofit Professional Liability
- Workers’ Compensation Insurance for Nonprofit Organizations
- Commercial Auto Insurance for Nonprofits
- Frequently Asked Questions About Insurance Programs for Nonprofits
- Attract quality board members: Recruiting board members who are passionate about your mission and who have the knowledge and skills to help propel your organization forward is essential. Showing potential board members that you already secured insurance for your nonprofit organization, conveys that you mean business and are taking the endeavor seriously.
- Protect your leadership, employees, and volunteers. While many nonprofit startups launch with a “solopreneur” or a very small team, in time, your organization will grow to include both employees and volunteers. Securing sufficient insurance for your nonprofit means that everyone is covered and protected.
- Safeguard against financial or property loss. There are many unknowns that come with operating any kind of business. Whether it’s a natural disaster such as a flood or hurricane or an environmental or structural catastrophe such as an electrical fire or contaminated water supply, you want to make sure that your organization doesn’t have to pay out-of-pocket for repairs. Seeking out appropriate insurance for a nonprofit organization can help ensure that you won’t become insolvent if a crisis hits.
- Protect third parties such as visitors, clients, and donors from bodily injury. Obtaining insurance for your nonprofit helps protect anyone who sets foot in your office or headquarters. If your nonprofit provides services on-site, you’ll have clients and program participants coming through your doors regularly. Participating in a nonprofit insurance program means that your organization’s finances are protected if a person slips and falls, is somehow injured, or experiences physical, mental, or emotional harm while on your premises. While these concerns may seem like a long-shot, it’s better to prepare for a future problem than to be caught in a problem without any assistance or recourse.
Insurance for Nonprofits Mitigates Risk
When we are talking about risk, we are talking about the potential for a loss to take place. Those insurable losses may include injuries (to your staff, volunteers, the clients you serve, or to the public) damage to your property or the property of others theft/fraud monetary damages caused to others that you may be wholly or partially responsible for. Making sure you have adequate insurance designed for a nonprofit organization will help when those situations arise.
Below are the most common insurance types for nonprofits. Take time to review the options that are available and consult with your organization’s leadership and board about which they believe is most appropriate to consider. Remember that participating in a nonprofit insurance program may be required to obtain permits, leases, financing, and or to attract board members and volunteers. While our list is extensive, it is not exhaustive of every form of insurance a nonprofit can obtain. There are many more insurance options, but they are often more niche or specific to certain types of nonprofit organizations.
General Liability Insurance for Nonprofits
General liability is a core insurance to protect against lawsuits from third parties including accidents involving visitors, clients, or delivery people.
General Liability for Third Party Damages
Your organization, your volunteers, your employees and your directors and officers should all be included as insureds under this policy.
Insurance for Nonprofits:
Your General Liability Coverage In Action
- Your nonprofit operates a thrift store and a volunteer mopped-up a spill, but neglected to put the mop away, resulting in a shopper falling over the mop and hurting themselves.
- An employee involved in a work-related training project at an off-site location causes damage to a computer lab. As a result, the property owner sues your organization to recover damages.
- Your animal rescue nonprofit hosts an adoption event but an injury occurs to an attendee due to staff or volunteer negligence. The attendee requires medical treatment for the injury and their health insurance provider seeks medical payment remittance from your organization.
Why General Liability Nonprofit Insurance Programs
- Foundational coverage for most nonprofits.
- Many insurance companies will not provide other coverages as standalone insurance without also having general liability in place.
- If you hold a fundraiser or other special event, you might need this coverage to book a venue or fulfill a client contract.
Common Nonprofit Organization Coverage Limits
for General Liability
- $1 million per occurrence and up to $3 million in aggregate.
General Liability Insurance for Nonprofits Typically Does Not Cover:
- Any damage for anything your nonprofit already owns,
- or any injuries to your employees.
- Contact your agent to ensure these types of injuries or damages are incorporated into the policy or covered elsewhere.
Directors and Officers Insurance D&O
Protect Your Decision Makers
D&O protects board members and officers against legal expenses if they are sued for a decision, made on behalf of the organization resulting in a financial loss.
An effective D&O policy should provide broad coverage and include employment related actions, including discrimination, harassment, wrongful termination, and failure to hire. It should pay defense costs as they are incurred.
Reasons to Consider
- Any nonprofit with a board of directors or advisory, including nonprofits with no employees.
- Nonprofits who wish to protect highly desired board members and officers.
- D&O help attracts top talent who might otherwise decline if they believe their personal assets were at risk.
Coverage In Action
- Accusations of mismanaged funds. If board members are accused of making poor financial decision or misusing the nonprofit’s funds, they could be sued. Even if a lawsuit is without merit, attorney’s fees and court costs could significantly drain the nonprofits finances.
- Failure to meet regulatory standards. If your nonprofit organization fails to meet regulatory standards, your board of directors may be targeted or blamed. D&O insurance can help pay for the cost of hiring an attorney and other legal expenses that result from a lack of compliance with industry standards or regulations.
- Failure to perform official duties. Directors and officers have influence and limited control of the nonprofit, as such they are considered fiduciaries and when something goes wrong, the may take the responsibility. If a board member is sued for failing to perform fiduciary duties or fulfill legal requirements, D&O protection can help pay for the legal cost of hiring a legal representation and other expenses.
Common Coverage Limits
- $1 million per occurrence and up to $2 million in aggregate.
- Umbrella limits up to $10 million.
Nonprofit Professional Liability
Nonprofit Social Service Professionals often require a professional liability policy in addition to a general liability policy. Professional liability covers liability for damages arising from errors and omissions in the providing of professional services, including claims and lawsuits associated with social services. This would include activities such as teaching, counseling, consulting, and related activities. Psychiatrists and other physicians must have their own professional insurance.
Cover Your Professional Services
- Liability for damages arising from errors and omissions of service professionals.
Reasons to Consider Nonprofit Professional Liability Coverage
We strongly recommend this coverage if you’re running a nonprofit that provides social services and your staff includes the following: nurses, educational professionals, veterinary professionals, adoption service employees, aides, assisted living providers, childcare workers, counselors, daycare providers, instructors, mentors, nurse assistants, psycho-therapists, psychologists, resident home care providers and supervisors, social workers, therapists and tutors.
Professional Liability Coverage In Action
- Medicine Dosage Error: A nurse providing improper medicine dosage.
- Injured child: Teacher or faculty of a nonprofit school inadvertently hurts a child while restraining a disabled or difficult student.
Common Coverage Limits
- Various limits, typically up to $3 million in aggregate.
- Umbrella limits typically up to $10 million.
- Separate limits from the General Liability coverage.
Workers’ Compensation Insurance for Nonprofit Organizations
Workers’ compensation is a form of insurance required for nonprofits and for-profit businesses in almost every state that the enterprise has employees. It can cover medical costs and lost wages for work-related injuries.
Protect Your Employees
- Coverage includes injured workers’ medical expenses, as well as wages they might lose while recovering.
- Attorney fees, court costs, and judgements.
Workers’ Compensation Nonprofit Insurance Coverage In Action
- An employee at your non-profit animal shelter gets seriously injured helping rescue dogs, and the staff member has to take extended leave for recovery.
- An employee of a senior community center sustains a significant injury while performing their routine responsibilities and needs several weeks before receiving medical clearance to return to work.
Common Coverage Limits for Workers’ Compensation
Workers’ compensation covers most work-related injuries by paying for medical bills and wages. Each state has its own mandates: To look up your state’s mandates, please visit: https://www.dol.gov/owcp/dfec/regs/compliance/wc.htm
Commercial Auto Insurance for Nonprofits
The primary purpose of commercial auto insurance for nonprofits is to provide financial protection against physical damage to property and/or bodily injury resulting from traffic collisions and against liability that could also arise.
What Injury and Property Protection Covers
- Third-party liability damage to vehicles, property, and injury to others.
- Physical damage to vehicles owned by organizations.
- Uninsured/underinsured motorist to accidents involving uninsured or underinsured motorists.
- Non-owned/hired vehicles.
Why Commercial Auto Insurance Programs
- An important safeguard for a nonprofit organization that owns, leases, or rents vehicles.
- If your nonprofit has employees who drive company owned, leased, or rented vehicles.
- Necessary coverage if employees or volunteers use their personal vehicle for organization business.
Commercial Auto Insurance Coverage
for Nonprofits in Action
- An employee, driving a vehicle owned by your organization causes an accident, injuring another driver and their passenger.
- You’re driving your vehicle on business for the organization when you’re involved in a collision that results in damage to your vehicle.
Common Limits for Commercial Auto Insurance for Nonprofit Organizations
Minimum required commercial auto liability coverage varies by state, and typically is the same for both personal and commercial auto liability policies. Many companies opt for more than state-minimum coverage. Why? Because if an injured party sues for a larger amount than the minimal policy covers, it could seriously threaten their nonprofit.
Generally, at least $100,000 commercial auto liability coverage per vehicle, with a minimum of $500,000 up to a maximum of $1 million.
Additional coverage can be provided through an umbrella policy.
Additional insurance programs nonprofits may consider include:
- Employee Benefits Liability
- Improper Sexual Conduct and Physical Abuse Liability
- Umbrella Liability
- Employee/Volunteer Dishonesty
If you are interested in obtaining insurance for your nonprofit, we encourage you to contact us. Our affiliated company, BryteBridge Insurance Solutions LLC (BBIS) exclusively provides small business insurance and insurance for nonprofit organizations.
BryteBridge Insurance Solutions LLC (BBIS) started in 2020 as a complementary service due to demand from our nonprofit clients. BryteBridge Consulting LLC and BryteBridge Insurance Solutions LLC are separate, but affiliated companies, owned by BryteBridge, Inc.
Frequently Asked Questions About Insurance Programs for Nonprofits
The need to carry insurance depends on many factors relative to your nonprofit. It is important to work with a qualified insurance professional to review your risk exposures and determine what types of insurance you need to carry.
- General Liability, Property, and Directors & Officers Insurance – There are no laws that require nonprofits to carry general liability, property or directors and officer’s coverage. However, funding sources and others that contract with a nonprofit routinely require insurance as a condition of engaging in an agreement. Additionally, if a nonprofit does not carry appropriate insurance coverage, it must have the financial resources to self-insure in the event a large lawsuit or financial loss occurs.
- Workers’ compensation is commonly required by law to protect employees from injury, illness, or death while on the job—but that requirement varies state to state—so you will need to check the laws in your state to see if that applies to your nonprofit.
- Auto insurance is also required by law for any owned vehicles, but coverages differ greatly depending on which state. Auto insurance may also be necessary if employees or volunteers are driving their vehicles to perform duties on behalf of the nonprofit.
- Nonprofit Retirement plans may require an ERISA bond to protect the employee’s retirement funds. If your organization has a retirement plan, you may be required to carry an ERISA bond as well.
It is up to each nonprofit organization to determine what coverage is necessary, however, a licensed agent that specializes in insurance for nonprofits can help.
- Board members: It is not uncommon for prospective board members to request that a Directors and Officers policy be purchased before they will participate as a board member.
- Events: Some venues request that the nonprofit provide them with a certificate of insurance to use their space for an event.
- Vendors and funding sources: Typically, they require a minimum of general liability insurance before entering into an agreement.
- Prior experience with claims: Often, nonprofit leaders believe they will not be sued because of their good work in the community. Unfortunately, this is not always the case.
It is up to each nonprofit organization to determine what coverage is necessary, however, an insurance agent can help with this decision. General and/or professional liability is considered foundational coverage for most nonprofits. Many insurance companies will not provide other coverages as standalone insurance without also having general and professional liability in place. For example, if you only wish to obtain directors and officers coverage, many insurance companies will not issue without your organization first having its core or foundational insurance coverages in place, specifically general and professional liability. If you hold a fundraiser or other special event, you might need general liability coverage to book a venue or fulfill a client contract.
Nonprofit directors and officers are legally responsible for the day-to-day decision-making of their organization. Directors and officers can be held personally liable for any breach of duty. D&O insurance for nonprofits can help protect board members and officers and safeguard against exposures of their personal assets.
It may only take one suit to dissolve your organization. Many community-based organizations do not have the financial means necessary to fight a lawsuit, regardless of its merit. Legal defense costs alone can have material impact to even the most financially stable organization. Securing adequate insurance for your nonprofit organization is a must.
Without sufficient D & O insurance, a nonprofit board member’s personal assets may be at stake in a claim including retirement savings, investments, or a home. Without adequate auto insurance, a single accident could result in hundreds of thousands of dollars to medical and vehicle claims. Participating in specialized insurance programs for nonprofits helps preserve your assets.
Organizations can be sued for discrimination, harassment, or wrongful termination in addition to general liability or property loss claims. In addition, directors and officers must always act as a fiduciary for their organization, avoid conflicts of interest, and exercise care in decision-making. Any perceived breach of these duties can result in a lawsuit. Even allegations that are without merit can be costly. Obtaining specialized insurance for nonprofits protects your organization against many kinds of legal challenges.