Nonprofit Insurance

A Guide for Complete Coverage

What is Nonprofit Insurance? 

Like any other business organization, nonprofits also need to secure themselves from the many risks and unforeseen events that could cost them big. Hence, proper insurance is imperative to protect the people and assets that help a nonprofit fulfill its vision. Therefore, some of the most common risks nonprofit organizations face are:

  • Fraud, embezzlement, and misallocation of funds by employees or board members.
  • Claims of negligence or breach of duty
  • Accidents and workplace injuries
  • Property damage
  • Data breaches

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Why Do You Need It?  

Nonprofits have many stakeholders, including employees, donors, volunteers, and government regulators. So, a small misunderstanding with any of these parties can result in a costly lawsuit. Legal fees and settlements can drain your organization’s funds very quickly. So, proper coverage protects your organization, its assets, and stakeholders.

Moreover, if your nonprofit is of a religious nature and operates out of a church or any other religious organization, you can opt for church insurance.

What Does It Cover?  

The following coverages are the ones most recommended for nonprofits and would be a great asset to your organization’s risk management strategy.

Business Owners Policy

business owners policy combines nonprofit liability insurance with commercial property insurance and business interruption insurance. Furthermore, liability insurance covers claims against property damage or bodily injury to third parties.

Commercial property covers damages to business property and its physical assets. As a result, adding BII to the policy covers any income losses due to a temporary closure. Purchasing a BOP is usually cheaper than buying standalone policies.

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Commercial Property Insurance 

Commercial property insurance covers losses or damages to your organization’s properties and assets. So, securing physical assets like office equipment, furniture, and computers, property insurance is a must. This is because it covers costs related to covered events like vandalism, theft, burst pipes, or fire. It is an important component of nonprofit insurance.

Commercial General Liability Insurance

General liability insurance covers any damages made to a third-party by your organization and your employees. Coverages include:

  • Third-party bodily harm: The policy covers all costs, including medical bills, court settlements, and legal fees.
  • Third-party property harm: The policy pays for repair, replacement, and legal costs incurred by the loss of property.
  • Advertisement harm: The policy covers any costs related to copyright and defamation lawsuits against the organization.

Commercial Auto Insurance 

Commercial auto insurance provides auto liability and physical damage coverage in case of an accident involving your business vehicle(s). Hence, if the vehicle owned by your organization is at fault, auto liability pays for the damage and injuries to the third party. Likewise, it is compulsory for businesses who use commercial vehicles in all states except Virginia and New Hampshire.

Workers Compensation Insurance 

Workers compensation insurance protects your employees if they get injured as a result of any work-related accidents or mishaps. It covers medical costs, loss of wages, rehabilitation costs, as well as death benefits. Furthermore, this insurance is mandatory in all states except Texas.

Volunteers, interns, and students-in-training may not be included in your workers compensation policy since they are not considered an employee. In such cases, you can opt for volunteer accident insurance. It is also an imoirtant component of nonprofit insurance.

Professional Liability Insurance 

Professional liability insurance covers losses that arise due to professional negligence, misconduct, or errors during a professional’s course of work. The policy also includes defense costs or any other expenses incurred during a lawsuit.

Employment Practices Liability Insurance 

Employment-related lawsuits occur when workers claim there has been a violation of their legal rights by the organization. Hence, this may result in reputational damage for the organization, costly legal fees, decreased employee morale, and disruption in work.

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Employment practices liability insurance covers defense costs for wrongful acts related to employment, including workplace harassment and discrimination, violation of the Family and Medical Leave Act as per the U.S. Department of Labor, and wrongful termination.

Directors and Officers Insurance 

Directors and Officers Insurance, or more commonly known as D&O insurance, is one of the first coverages many nonprofits ask about as it is considered must-have insurance. D&O insurance personally protects the board of directors against any lawsuits relating to:

  • Misuse of funds
  • Embezzlement
  • Wrongful termination of an employee
  • Claims of harassment
  • Negligence

Commercial Cyber Liability Insurance 

Commercial cyber liability insurance has been making waves in the industry due to the number of recent commercial data breaches. So, like any other business, nonprofits are not immune to cybercrime.

For instance, employee, donor, and client data, can be easily accessed by a cybercriminal if you do not have the proper security in place. Hence, cyber liability covers data damage, cyber extortion, loss of income, and reputation management.

Event Insurance 

Nonprofits regularly hold special events such as fundraisers and meetings for stakeholders. Event insurance is necessary to ensure your gatherings don’t end up costing you a fortune in case of a mishap. Imagine if a candle is accidentally knocked over and sets fire to the property or if a child slips and injures themselves while at your event. In such instances, event insurance comes to the rescue. It covers property damage and bodily injury.

Fiduciary Liability Insurance 

If your nonprofit provides additional benefits like retirement and health plans, fiduciary insurance is a viable option for your organization. This insurance covers claims relating to improper administration of employee benefit plans, or inappropriate use of donor and grant funds. Your organization can still be held liable even if you use a third party to manage your financial plans so having this insurance is crucial.

Commercial Umbrella Insurance 

Commercial umbrella insurance provides additional limits over commercial auto liability, CGLI, professional liability, or D&O liability. While it is not a mandatory policy, if your nonprofit operates on a larger scale, you should consider purchasing this insurance policy to make sure you are fully covered in the event of a lawsuit or accident.

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Additional Policies to Consider  

You can also add a few additional policies to ensure your nonprofit and stakeholders get extra protection.

Employee Dishonesty and Crime Coverage

An employee dishonesty policy helps to replace funds stolen by an employee. Often, this type of fraud is inflicted over a more extended period, and when discovered, it causes significant trust issues between the community and a nonprofit. This coverage will cover the loss resulting from the employee’s theft.

Volunteer Accident Insurance 

As mentioned previously, volunteers are not covered under your worker’s compensation policy. You’ll need to opt for a separate volunteer accident insurance to protect them. They are covered in the event of injury, disability, or death while they work for your nonprofit. If your volunteers do not have health coverage, this is essential coverage.

How Much Does Insurance Cost for a Nonprofit Organization?  

The costs depend upon the size and activities of your nonprofit. In other words, your nonprofit’s activities and services determine the type of liability and potential claims you face.

Factors that determine the cost of your insurance are:

1. Annual Budget

2. Nature of work

3. Value of assets

4. Payroll

5. Size of the workforce

6. Claims history

Looking for the appropriate coverage but don’t know where to start? Check out our insurance blogs to find the tight fit for you.

Has this article been helpful to you? Leave a comment below and share your thoughts with us.

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