What Type of Insurance Do Nonprofits Need?
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Nonprofit insurance is a set of specialized policies designed to protect nonprofit organizations from various risks involving liability or damage to their physical assets, like office space and products. These policies are crucial for ensuring the continuity of mission-driven work, safeguarding assets and addressing legal requirements.
Learn about the cost of coverage and how your nonprofit can get proper insurance.
What Is Nonprofit Insurance?
Nonprofit insurance is a suite of insurance policies specifically designed to meet nonprofit organizations' unique needs and challenges. These policies protect nonprofits from various risks such as property damage, liability claims and employee-related risks, ensuring the continuity and sustainability of their mission-driven work.
Are Nonprofits Required To Carry Insurance?
Whether insurance for nonprofits is legally required will depend on the nature of the nonprofit and the whims of outside vendors used for special events.
For example, if your nonprofit employs workers and has company vehicles, then your state will likely require you to carry workers’ compensation insurance and commercial auto insurance. In addition, if your nonprofit holds fundraising events, then the venue may require you to purchase event insurance, which will cover you for liability issues during the event.
Who Is Nonprofit Insurance For?
Nonprofit insurance is ideal for nonprofit organizations of all sizes, industries and with different missions, including:
- Trade nonprofit associations
- Business nonprofit associations
- Professional nonprofit associations
- Alumni nonprofit association
- Charitable foundations
- Civic nonprofit associations
- Political clubs
- Recreation clubs
What Types of Insurance Do Nonprofits Need?
To safeguard their mission, assets and people, nonprofits should consider the following types of nonprofit insurance coverage:
General Liability Insurance
General liability insurance is a core type of nonprofit liability insurance, protecting the organization against third-party claims of bodily injury or property damage. For example, if a visitor slips and falls during a charity event held by the nonprofit, general liability insurance would cover the medical costs and any legal fees if the claim were to escalate into a lawsuit.
Commercial Property Insurance
Commercial property insurance protects the physical assets of a nonprofit, such as buildings, equipment and inventory, against damage or loss due to perils like fire, theft or natural disasters. For example, a nonprofit community center damaged by a fire would rely on this policy to cover repair or replacement costs.
Business Interruption Insurance
Business interruption insurance compensates the nonprofit for lost income and operating expenses if it is unable to operate due to a covered peril, such as a fire. For instance, an animal shelter forced to close temporarily due to theft and vandalism would use this coverage to maintain operations.
Business Owners Policy (BOP)
A BOP combines general liability insurance, business property insurance and business interruption insurance into a single, convenient package and often at a lower cost than buying each policy separately. This type of bundled policy is a perfect solution when buying insurance for a nonprofit organization, especially if it is a smaller enterprise or newly started.
Directors and Officers Liability Insurance (D&O)
Director and officers liability insurance (D&O) shields a company’s directors and officers from legal repercussions stemming from alleged wrongful acts conducted in their roles. Ninety-five percent of D&O claims filed with the Nonprofits Insurance Alliance involved wrongful termination, harassment, wage and hour law violations and discrimination. When such claims arise, D&O insurance pays for attorney fees, damages and other legal defense costs.
Employment Practices Liability Insurance
Employment practices liability insurance (EPLI) is a form of coverage designed to defend your nonprofit from claims lodged by workers about possible employment law violations, such as unlawful termination, discrimination, sexual harassment and retaliation. Should an employee allege they were unjustly overlooked for advancement due to race or gender, EPLI coverage can assist in alleviating the financial repercussions stemming from a prospective legal action.
Fiduciary Liability Insurance
Fiduciary liability insurance, or employee benefits liability insurance, serves as a protective shield for both individuals and entities in charge of the financial assets of others, safeguarding them against monetary damages arising from allegations of fiduciary duty violations. For instance, the individuals responsible for managing the organization's employee benefit plans would be protected if they were sued by plan participants alleging a breach of fiduciary duties under ERISA.
Professional Liability Insurance
Professional liability, also known as errors and omissions insurance, this policy covers nonprofits against claims of negligence or mistakes made while providing services. For example, a counseling center would be protected if it was facing a lawsuit for alleged improper advice that led to reputational harm or financial loss of a serviced individual.
Commercial Crime Insurance
Commercial crime insurance is a form of policy designed to shield your nonprofit from losses incurred due to the conduct of employees or external parties. This protection typically encompasses losses related to theft, deceit, forgery, break-ins and other instances of financial or tangible asset depletions.
For example, should an employee illicitly acquire customer data, this coverage can serve to safeguard your business against the ensuing repercussions.
Management Liability Insurance (MLI)
An MLI policy combines several commercial liability policies that protect managers, executives and other members in leadership roles at a nonprofit into a single plan. While similar to a BOP in this regard, an MLI is far more customizable, delivering a wider range of coverage, ideal for nonprofits and other organizations. These policies typically include:
- Directors and officers liability insurance
- Employment practices liability insurance
- Fiduciary liability insurance
- Professional liability insurance
- Commercial crime insurance
Commercial Auto Insurance
Commercial auto insurance covers vehicles owned and used by the nonprofit for damages resulting from accidents (caused by you or another driver), theft or vandalism. The policy for a food delivery van for a soup kitchen that causes a car accident would cover the costs of property damage or physical injury to anyone involved. This could include injury or damage to the insured vehicle or driver.
Workers Compensation Insurance
Workers compensation is mandatory in most states and covers medical expenses and lost wages for employees injured on the job. An employee of a nonprofit hospital who gets injured while lifting heavy equipment would be compensated through this policy.
Event insurance offers liability protection for nonprofits hosting events like concerts and other fundraising events while covering costs related to unexpected cancellations. This is the ideal coverage for any nonprofit putting on a live event to help raise money for its cause.
Additional Policies To Consider
Several other nonprofit insurance types are available for consideration, including:
- Product liability insurance: Protects nonprofits from claims related to the manufacture or sale of products. For example, if a toy manufactured by a company is found to be hazardous and injures a child, this insurance would cover the associated claims.
- Cyber liability insurance: Crucial for nonprofits to cover losses related legal actions due to cyberattacks or data breaches.
- Improper sexual conduct and physical abuse liability insurance: Covers legal expenses associated with sexual misconduct claims.
- Social services professional liability insurance: For nonprofits offering social services, such as food assistance and housing help, covering claims related to the provision of those services.
- Non-owned/hired auto liability insurance: Protects against liabilities from the use of non-owned vehicles for business purposes.
- Liquor liability insurance: Protects against claims involving alcohol consumption at one of your fundraising events, such as a drunken donor getting into a fight with another person.
- Inland marine insurance: Covers your property and client’s property in transit or at temporary locations, such as items being transported to a fundraising event.
- Volunteer dishonesty insurance: Safeguards against theft or fraud by volunteers.
- ERISA bond: Protects the beneficiaries of employee benefit plans against losses caused by acts of fraud or dishonesty such as theft by the plan officials. Required for organizations handling employee retirement plans.
- Kidnap & ransom insurance: Provides coverage for kidnapping-related expenses.
- Identity fraud expense reimbursement insurance: Covers costs related to identity theft.
How Much Does Insurance Cost for a Nonprofit?
The cost of insurance for a nonprofit varies widely depending on the size of the organization, the scope of its activities and its location. The coverage you choose will also affect the cost. For instance, a nonprofit that purchases a BOP will pay an average of $350 to $2,500 per year. If that same nonprofit adds workers compensation, the premium would increase by another $375 to $1,400 per employee. Furthermore, adding commercial auto insurance would cost an additional $1,125 to $3,900 per year.
How To Get Insurance for Your Nonprofit
Obtaining a minimum of three to five quotes from various providers is advisable when buying insurance for nonprofit organizations. Insurance carriers will inquire about specific aspects of your business, including industry, location, annual revenue and employee count. However, submitting this information to each provider can be cumbersome and time-consuming.
Thankfully, an insurance marketplace like SmartFinancial can simplify this task significantly. By completing a single questionnaire about your coverage preferences and budget, you can be paired with a commercial insurance policy tailored to your needs, sometimes in just a few minutes. To receive your complimentary insurance quote, simply input your zip code below.