Do You Need Nonprofit Insurance?
A Complete Guide
TLTR: This article is for parties who are seeking insurance for nonprofits. Find out about the key considerations, and get an overview of mandated nonprofit insurance policies as well as additional policies.
Nonprofit organizations fall under two distinct categories. They are either member-serving, such as social clubs and labor unions, or they serve a broader public space, such as non-governmental organizations (NGOs), or international non-governmental organizations (INGOs). According to the National Center for Charitable Statistics, there are approximately 1.54 million nonprofits registered in the United States.
A nonprofit organization which is eligible for nonprofit insurance receives its funding not from the sale of goods and services, but from public, governmental contributions and community support.
In this blog
Basics of Insurance for Nonprofits
Any nonprofit organization seeking insurance must know that their coverage needs are different from those of a regular business. Although bundle policies such as the business owners policy (BOP) will contain most of the coverage needed by a nonprofit, they aren’t completely sufficient on their own.
According to the Nonprofits Insurance Alliance Group, 95% of claims filed within nonprofit insurance is related to wrongful termination, harassment, and discrimination. To properly deal with such issues, it’s important to find an insurance agency or not-for-profit insurance company that specializes in covering the nonprofit sector.
Operating budgets tend to be tight for nonprofits, so their coverage plan is generally divided into the policies they currently require, and secondary policies they will need in the event of a new project or acquisition.
Three indicators determine a fully functional nonprofit insurance company:
- Balanced bundle policy options
- Customer retention
- Membership and renewal benefits
Key Considerations for a Nonprofit Seeking Insurance
Fundraising is an important aspect for nonprofit sectors. Drafting proposals and bidding for projects are daily occurrences. Your bidding proposal will hold more value if you show you’re insured and your employees are secure. Donor stakeholders to your firm will be encouraged to donate to nonprofits that have secure money management systems in check.
As with any type of business, important objectives include risk management and avoiding loss. Companies appear approachable when they are fully covered. Employees also perform better knowing all their concerns will be duly addressed.
When considering different policies, only you can determine if they will cover the unique challenges and risks your nonprofit faces. As you decide on the details of your coverage, a few things should be kept in mind:
- Scope of the coverage: How much does your policy cover? Look for hidden costs.
- Exclusions: As an extension of the scope, what are the things the policy does not cover? Sometimes, existing exclusions means there is another, better policy out there.
- Geography: This holds true especially for INGOs. Will your policy cover liabilities and employees when they are outside the United States?
Let’s have a look at mandatory coverage of a nonprofit organization.
Directors and Officers (D&O) Insurance for Nonprofits
According to The Balance, D&O Insurance is what nonprofits are most concerned about with insurance coverage. This policy protects the managerial team, employees, interns and volunteers of the company from wrongful accusations and malpractice. Nonprofit organizations have to work with a number of stakeholders such as the public, governmental bodies, and other nonprofit organizations.
As well, if any employee or volunteer decision leads to monetary loss for the organization, D&O insurance has you covered. Nonprofit employees are knowledge workers who regularly produce newsletters and publications at work. D&O insurance for nonprofits also includes a publisher’s liability clause which will cover libel and copyright infringement. Always ask your insurance agent if your D&O policy comes with this clause.
Lastly, a D&O policy is necessary because the federal volunteer protection laws do not compensate for a large defense fund or an insurance policy. Often, nonprofit organizations assume that their protection is guaranteed by federal rules. But without D&O coverage, they can end up paying for large and avoidable lawsuits. According to Vis Volunteers, the liability limit for D&O insurance for a nonprofit is $1,000,000. But some nonprofits can produce proof of larger exposure to secure a higher claim. The D&O policy does not cover bodily injury or property damage.
We will learn more about the different policy functions further down.
Commercial General Liability Insurance
Commercial General liability insurance is another common liability policy purchased by nonprofits. CGLI covers claims against:
- Bodily injury when someone is harmed through the nonprofit
- Damage to third-party property caused by the nonprofit
- Personal injury which includes slander and defamation
- Advertising injury such as copyright infringement
According to Volunteer Alive, general liability cost ranges from $450-$700 annually, depending on organization size. As for the coverage, experts agree that for an average-size nonprofit organization, the CGLI policy limit should not be less than $1,000,000 per occurrence yearly.
When filing a CGLI in the United States, the Insurance Service Office (ISO) requires you to go through a standardized 16-page coverage form. This form specifies that the insurance policy also applies to nonprofit organizations. Furthermore, volunteers and interns should be covered by a separate policy in order to preserve the main liability claim of the organization. CGLI policy includes compensation for legal fees, damage investigation, and any defense activity.
Workers Compensation Insurance
The state requires any nonprofit with full-time or part-time employees to purchase workers compensation insurance. The policy supports payment for workers if they suffer from injury on the job. Nonprofit work includes travelling and working in poor conditions, including risky, sometimes even unhygienic areas. This coverage is especially useful for nonprofit organizations that work in animal protection. Here, social workers can be prone to animal bites.
More specifically, workers compensation insures the following scenarios:
- Loss of income due to illness and injury
- Immediate and ongoing medical cost
Employee protection on the job is a serious concern, and costs run high if an employee experiences discomfort. There are many ways to reduce risks and create a safe environment for nonprofit workers.
Note: Premiums go up per workers’ liability claims. In case of worker’s compensation insurance, prevention is truly the best cure.
Additional Coverage for Nonprofits
Your organization might have more responsibilities that require broader protection. Such as:
Commercial Auto Insurance: If your organization owns vehicles, you must get additional commercial auto insurance for any liability or physical damage. Commercial auto insurance is usually part of a bundle policy for nonprofit organizations that contains all main coverage policies.
You can ask your insurance company or agent either to include or eliminate this policy as seen fit. Note that this policy covers the organization for liability claim but not the employee or person driving the vehicle.
Cyber Liability Insurance: Cyber liability insurance protects nonprofit firms from losses suffered by third party stakeholders like donors and clients. As modern-day organizations are moving their daily businesses completely online, including transactions and deals, it is important for the company to remain protected from data breach.
Cyber liability insurance covers system and data loss, business interruption and regulatory interruption expense. Be sure to include this policy if your nonprofit operates from regions outside the United States, such as developing countries or conflict regions.
How to Shop for Nonprofit Insurance
Whether you’re seeking insurance for a new nonprofit or looking to renew your policies, start your research as early as possible. Experts recommend starting the renewal process no later than 90 days before your policy expires. Here are a few things to keep in mind:
- Experience with claims: Have documentation of previous claims ready. Be prepared with answers to questions regarding your company’s claims history. If you remember confronting problems during the claims process, bring them up with your carrier so that they can be managed in time.
- Your nonprofit organization updates: Who are your recent stakeholders? Have there been any changes in your action plans and projects? Are there any changes in the budget? Gather documents for any changes your organization has undergone since your last coverage plan.
Nonprofits play an active role in alleviating the hardships of people both locally and globally. Their exposure includes national, international and bilateral firms, including governmental bodies and grassroots communities. It’s impossible to manage and interact with such a wide range of actors without prioritizing your own firm’s security foremost.
Liability insurance policies for social workers and not-for-profit insurance companies understand the nuances of social work practice. Their policies take daily non-profit activities including fundraising and interaction with donors and stakeholders into consideration. Their primary focus is making sure scarce resources are allocated less to lawsuit claims and more to those who are most in need.
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You can find an agent to get a free quote for your nonprofit organization today.
What factors go into a nonprofit purchasing insurance?
- Board Members: Before board members go on board with the nonprofit, they will request a policy purchased to secure them from liabilities.
- Events: Nonprofit organizations are well known for hosting regular events, and a lot of venues will ask for an insurance policy coverage proof before granting access to their event space.
- Stakeholders: Nonprofit stakeholders, such as civil society organizations, government and partner companies will ask for a general liability coverage before entering into a partnership.
Do I need an insurance agent for my nonprofit organization?
Having a strong relationship with a trusted insurance agent has immense benefits. Insurance for nonprofits is a specialized niche and an agent that specializes in nonprofit risks is a valuable asset. They will be able to assist you with loss control and risk management. Furthermore, they will be apt to communicate needs and claims to your insurance carrier so you don’t waste valuable time in the interactions yourself. Lastly, they will notify your insurance carrier about updates at your nonprofit’s end, and relay anything of value to both parties.
How do I get an insurance quote for nonprofit as quickly as possible?
Immediate ask your carrier to speak to an agent. Fill out any application provided by your insurance agent as soon as possible. If you are a small nonprofit you will receive your quote within 1-2 days of your submission, and a larger nonprofit will take at least 7 days.
Should I apply for quotes from two agents even if they have the same carrier?
Please note that carriers will not release two different quotes to the same nonprofit. Also, if you have presented the same information on each application (which should be the case) the prices will not be different.
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