Seven Essential Insurance Policies for Small Nonprofits and Smaller Charitable Groups
- Many small nonprofits may not have the insurance coverage adequate to protect the organization or its stakeholders from liability or other potential risks.
- Learn about essential recommended coverage, like general liability and D&O insurance for nonprofits.
- Nonprofits are equally at risk for things like workers compensation claims and liability claims. Having adequate coverage is crucial in today’s environment.
There are over 1.5 million nonprofit organizations operating in the United States today. These groups are made up of many types of charitable, political, and religious organizations and private foundations. They comprise health, education, art and social advocacy groups, religious organizations, veterans groups, labor unions, and professional associations, and they make up 10% of the U.S. workforce and 5.7% of U.S. GDP.
The IRS classifies any 501(c)(3) organization with total assets under $500,000 or total receipts of less than $50,000 as a small nonprofit. These groups are exempt from filing a Form 990 with the IRS (although they are required to send in a Form 990-N reporting postcard).
To put another way, there are numerous public, private, and religious charitable organizations operating in the U.S. and, the smaller they are, the less probable it is that they have sufficient commercial liability insurance. This leaves the organization, its stakeholders, and its employees at considerable risk.
We have put together a quick primer on the best nonprofit insurance policies that could prevent your small non-profit from getting involved in time-consuming and expensive lawsuits.
Who Needs Professional Liability Insurance Policies for Nonprofits?
No matter what size the nonprofit, your organization or board of directors could become a target in today’s litigious society — regardless of your good deeds. Lawsuits can originate from a variety of places. Here are a wide range of examples:
- Current and former employees (as well as volunteers) may file claims for wrongful termination, discrimination, sexual harassment, or ADA violations.
- Suppliers, donors, and any other entity with a connection to your nonprofit may make claims of wrongdoing by your directors, officers, staff members, or the nonprofit in general.
- Board members who violate their fiduciary duties may be sued by the nonprofit or by a group of donors.
- Beneficiaries, the real individuals you’re trying to assist, have the right to make accusations of wrongdoing against your board or organization.
- Due to the misuse of a restricted gift, donors may file a lawsuit.
- State Attorneys General may make accusations on behalf of the broader public.
- For alleged violations of state or federal laws, government organizations like the IRS and Department of Labor may file a lawsuit.
- Your organization has the right to take legal action against its own executives, directors, and past trustees.
In addition, you risk legal action if a delivery person gets hurt on your property, if you get into an accident in an organization vehicle, or if there is a problem at an event or fundraiser. It seems the risks are endless.
Fortunately, many insurance companies offer policies for the full range of risks that any nonprofit might find itself facing. So, let’s take a look at the types of coverage available and what’s required versus desirable.
What are the Seven Essential Types of Insurance for Nonprofit Organizations?
The extent to which your nonprofit should carry insurance relies on a variety of business-related issues. It’s crucial to analyze your individual risks with a knowledgeable insurance broker or agent to ascertain the sorts of insurance you should carry as well as those that might be a good idea.
1. General Liability Coverage
Also called commercial general liability or CGL, this covers your nonprofit for damages and should include your organization, volunteers, employees, and directors and officers. There are three types of injuries covered in a nonprofit liability insurance policy:
- Bodily Injury – This refers to harm or injury to another person, not to you or your staff (which is called Worker’s Compensation insurance which we discuss later in the article). An example of this would be if your nonprofit operated a thrift shop and cleaned up a spill but forgot to put the mop away, causing a customer to trip over the mop and injure themselves. In this situation, the nonprofit would be responsible for the customer’s medical care.
- Property Damage – A nonprofit is shielded from third-party lawsuits for any harm they may have caused through property damage. An illustration of this would be if one of your staff members was engaged in a project that resulted in damage to a homeowner’s property, and that person then filed a lawsuit against your company to recover damages.
- Personal Injury – If you or any of your nonprofit employees make disparaging or derogatory remarks about someone in the course of doing business and that person later sues your nonprofit for defamation, personal injury offers coverage for your nonprofit organization.
2. Directors and Officers Insurance for Nonprofits
This provides protection including legal assistance and payment of any damages if a member or officer of your board of directors is named in a suit against your nonprofit for financial malfeasance, fraud, or other mismanagement. Make sure your D&O insurance for nonprofits doesn’t exclude employment-related claims, one of the most common filed against boards.
Even if you believe your company has done nothing wrong, defending against a lawsuit brought by a disgruntled former employee can be costly. Both the defense expenses and any indemnity payments related to these types of charges should be covered by an employment practices liability policy that is a component of your D&O insurance for nonprofits. As your organization will be expected to contribute, be sure to find out if there is a deductible or self-insured retention component to your policy.
3. Professional Liability Insurance
Whenever a customer accuses your company of making a mistake (an error) or failing to do something (an omission), even if the accusation is unfounded, you are protected by professional liability insurance.
As an expert in your field, you must follow the norms and recommendations as a professional. If a customer feels you made an error or omission, they may claim you failed to uphold such standards and sue your business for money damages.
Also called Errors and Omissions or E&O coverage, this is a type of professional malpractice coverage that protects your non-profit from suits resulting from sexual harassment, discrimination, organization mismanagement and similar claims. It covers your board, employees, and volunteers.
4. Product Liability Insurance
Product Liability Insurance is essential to protect you from claims that a product you sold or gave away for fundraising caused injury, illness, or death. For example, selling ice cream bars with peanuts to someone with a peanut allergy could land you in court.
Product liability insurance shields a nonprofit from the consequences that arise if a product harms or otherwise negatively impacts other parties. Even when, through no fault of the nonprofit, a product is created, sold, developed, or used and hurts consumers.
5. Commercial Property Insurance
Your nonprofit’s tangible physical assets are safeguarded by commercial property insurance against a variety of unforeseeable occurrences, including fire, explosion, storms, theft, and vandalism. Extra protection is frequently offered for losses resulting directly from equipment failure, floods, earthquakes, and other direct business risks.
Commercial property insurance covers:
- Buildings and structures can be covered for either their real cash value or their replacement cost at the time of a disaster. Fixtures, machinery, and other items that are placed permanently are also covered.
- Contents: This includes company property that is utilized for conducting nonprofit business activities and is kept on or close to the company’s primary premise. Business inventory, supplies, furniture, computers, and other gear or equipment are some examples of contents.
- Fencing, outside signage, and landscaping may all be covered by your insurance automatically, but you are able to raise the coverage limits.
- Property in your care: Commercial property insurance can protect property from a variety of risks if a company is legally accountable for it and it is currently in their care, custody, or control even though it legally belongs to someone else.
- Personal property of customers: Customers’ personal property is likewise protected while on your property, and in some situations, even when they leave.
6. Homeowners Insurance Endorsement
Are you running a nonprofit out of your home or apartment? Your standard homeowners or rental insurance may not be sufficient to cover losses related to your business; it may even preclude such activity, which could void your entire policy. Be sure to check with your insurer to protect your home and home-run nonprofit operation.
Typically, a typical homeowners insurance policy has a $2,500 maximum reimbursement for home-based business property. If you have computers, cameras, and other electronic tools that you need for work, the $2,500 in insurance may not be enough to cover everything you would lose if your home office were broken into or damaged.
Home business insurance can increase your coverage limits and provide additional financial security for your company’s assets. There is no liability insurance included in this endorsement.
7. Commercial Vehicle Insurance
Many personal car insurance policies exclude the use of the covered vehicle for business use. If a volunteer or employee uses a vehicle owned by you or your nonprofit, you should get have a commercial auto policy in place in the event of an accident. If your nonprofit has vehicles, e.g., cars, trucks, delivery trucks, shuttle buses, etc., they need to be insured according to the laws within the states where you operate.
Other Insurance for Nonprofits
We’ve taken a look at some of the insurance policies that your nonprofit should consider. Here are a couple of other policies that you may be required to carry as well.
At a minimum, and to meet legal obligations, you will want to carry these types of mandatory coverage:
- Workers Compensation — All businesses that have employees or volunteers are mandated by law to safeguard workers against harm, illness, or death while doing their duties. To find out your organization’s obligations, examine your state and federal requirements as they differ from state to state.
- ERISA Bonds — An ERISA Fidelity Bond provides insurance coverage against losses from acts of fraud or dishonesty and can include theft, forgery, embezzlement, misappropriation of funds or property, and many other wrongful acts. If your nonprofit has an employee benefit plan and a plan administrator, an ERISA bond are required
How Do You Find the Best Price on Nonprofit Insurance?
Like other types of insurance, you want to get the best price possible with the coverages and limits that make the most sense for your nonprofit. One of the best ways to do that is to visit an online marketplace, like einsurance.com, where you can get reliable quotes from national carriers.
It’s simple and works like this:
- Visit einsurance.com and find the type of insurance you want to purchase. For nonprofits, look under business insurance and select the type of insurance you want to research.
- Enter your zip code into the quote engine to start the process or simply call the number listed.
- From there you will find a list of trustworthy, fully vetted business insurance carriers that do business in your area. Each one gives you the option to buy online and is verified secure and BBB.org reliable.
With a marketplace site, like einsurance.com, you can find the best prices for insurance and shop around to see your choices. In fact, it’s a good idea to review your insurance portfolio annually (both personal and professional) and update your policies as needed.
Contact us today for more information or you can learn more about small business insurance for your nonprofit and to shop for competitive quotes here.