Want vs. Need: Insurance for Nonprofits
Do nonprofits need insurance?
Of course, but it’s not always obvious which coverages are needed most.
Because operating budgets are always tight, managers at nonprofit organizations must construct their insurance programs so that “need to have” coverage is always in place, and “nice to have” coverage is added as circumstances permit. Here is a guide to nonprofit insurance requirements; what is needed immediately and what can be budgeted for later.
Nonprofits Face Numerous Liabilities
Just like commercial business organizations, every nonprofit organization faces an increased risk of liability claims filed each year and the legal costs associated with them. Both sectors have experienced an uptick in employment-related claims, including such areas as bullying and harassment, prejudice, failure to provide accommodations, and unfair hiring or firing practices. This can result in suits against directors and officers, board members, employees, and volunteers.
Nonprofit Organizations Have Different Insurance Coverage Needs
Many nonprofits may require fewer policies than a typical business due to the limited scope of their activities and more stringent budget needs. At the same time, nonprofits still may face a liability risk from the negligent acts of directors and officers, board members, employees, and valuable volunteers if they are used.
Each Nonprofit Is Unique With Individual Insurance Requirements
While the nonprofit sector is huge in our country, the types of nonprofit organizations are endless, whether they promote secular or religious causes. They vary in size, mission, and sources of funding. Some nonprofits employ staff and recruit volunteers; others do not use either one. While sometimes a nonprofit owns the property, equipment, and vehicles, other organizations may not own anything.
The endless kinds of claims that nonprofits face might include copyright infringement in promotional materials, advertising injury, liquor liability or personal injury at special events, auto liability stemming from an employee’s accident in a non-owned auto while conducting nonprofit business, and product liability for items sold at a nonprofit thrift shop, baked goods offered at a fund-raising sale, counseling provided by a volunteer, and many other activities.
Costs of Nonprofit General Liability Insurance Vary With Each Organization
With so many different sizes and types of nonprofit organizations, the price of insurance coverages can fluctuate greatly. Annual premium costs for a general liability policy can range from $500 all the way up to several thousands of dollars. The amount of the deductible chosen with the liability policy also affects the premium for the insured nonprofit.
Likewise, the amount a nonprofit pays for workers’ compensation coverage depends on the number of employees the organization maintains and the types of risks they face in their jobs.
Need-to-Have Volunteer Insurance Coverages
Responsible nonprofit organizations must have insurance policies designed to cover critical aspects of the operation, including the organization itself, its physical assets, its managers and directors, and its volunteer workforce. Need-to-have insurance includes:
1. Directors & Officers Liability Insurance
Your directors and officers can be sued for a variety of reasons, including wrongful acts or mismanagement of the organization and its resources. D&O insurance protects them from the loss of personal assets, and this safeguard for directors and officers helps attract and retain top talent.
Although board members may think their home insurance and excess liability or umbrella policies provide protection for their volunteer activities, these insurance products usually do not cover liability for poor judgment and decision-making. Typically, D&O insurance coverage has a $1,000,000 liability limit, but higher limits are available from VIS.
In a similar vein, professional liability insurance, which is often called errors and omissions insurance, can protect employees, volunteers, and the entire organization from lawsuits initiated by donors or clients who are unhappy with the way the nonprofit is run.
2. General Liability Insurance
No matter how safety-conscious you are, your volunteers, as well as paid staff if you have them, can injure others or damage someone’s property. General 501C3 liability insurance protects the organization and its employees against bodily injury and property damage claims, as well as personal injuries such as libel or slander.
We recommend that nonprofits obtain general liability policies with limits not less than $1,000,000 per occurrence and $2,000,000 aggregate and a separate policy to cover the liability exposure of volunteers. A separate policy for volunteers protects them while preserving the organization’s own liability limits and claims experience.
3. Auto Insurance Coverage
General liability policies don’t cover property damage or bodily injury caused by vehicles. If your nonprofit owns any autos, vans, or other vehicles, you need business auto liability coverage. Your volunteers — and employees, if any — may use their vehicles on their assignments, so it’s important to protect your organization from this risk with volunteer auto insurance.
If your organization doesn’t own vehicles, you can obtain what’s called a hired and non-owned auto insurance policy. Hired would be a rental car. Non-owned would be the vehicles of your employees or volunteers when they are using them in their assignments. This can be a separate policy, or it can be added to a general liability policy. We recommend a limit of not less than $1,000,000.
This coverage protects the organization. However, volunteers often are concerned about their own liability, especially if they transport clients. Offering volunteer excess auto liability coverage can satisfy those concerns. This coverage sits over the volunteer’s personal auto insurance policy.
4. Workers’ Compensation Insurance
If you have employees, your state probably requires that you carry workers’ compensation insurance for job-related injuries. Premiums vary according to total payroll and loss experience. Sometimes you can arrange that workers’ compensation covers volunteers also, but even if your state will allow it, we recommend you provide coverage separately. Volunteer accident coverage pays in excess of your volunteers’ other insurance, if any, and is much less expensive than workers’ compensation.
5. Product Liability Insurance
If your nonprofit offers any type of event, product, or service to clients and supporters, product liability insurance provides extra safeguards and security for the organization. The possibilities for claims are numerous, including injuries resulting from items sold at a craft sale, food poisoning at a volunteer appreciation dinner, or baby supplies distributed at a pregnancy counseling center.
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Nice-to-Have Insurance Coverages
1. Property Insurance
If you own or lease an office, you will need to cover your property. In fact, the lease might require a property insurance policy. Furniture, computers, phones, and other equipment can be expensive to replace if they are damaged or destroyed. Property insurance is readily available; premiums vary based on the value of what is covered.
2. Crime coverage
While we might never think that our employees or volunteers would commit any type of theft, things sometimes happen. Crime coverage makes the organization whole if employee dishonesty occurs. Coverage can be limited to the premises or can include losses off-premises. In addition, you can cover the assets of others, such as clients. The VIS crime policy starts at a little more than $200 and is based upon the number of volunteers and employees.
3. Cyber liability
If you collect personal information, you have cyber liability exposure should a data breach occur. Even though your organization might not be a high-profile target for hackers, information can be released accidentally or even intentionally by a disgruntled employee or volunteer. The more information that you have, the higher your risk. Cyber liability insurance coverage helps pay expenses you would incur should there be a breach or ransomware attack. Pricing and coverage vary greatly.
4. Employment liability
If you have employees, risks include failure to hire, failure to promote, wrongful termination, sexual harassment, discrimination, and the list goes on. For nonprofits, the coverage can be endorsed onto a directors and officers liability policy for about $200 and is well worth the peace of mind it brings to your valuable board members.
Have the right agent or broker for nonprofit organizations
Because every organization’s needs are a little different, it is important that you work with an agent or broker who has a proven track record, understands nonprofit organizations, and can place coverage with appropriate insurance companies. Unfortunately, most agents and companies do not specialize in nonprofits and may not recognize the special risks, liability coverage needs, and excess limits requirements. If you need help identifying an agent who’s an exception, and who understands the best value in nonprofit insurance, please contact us at volunteers@visvolunteers.com, or 800.222.8920.
About VIS
Volunteers Insurance Service Association, Inc. was established in 1972 for the purpose of providing insurance and risk management services for volunteer-based organizations. In addition to still providing these insurance services today on a nationwide scale, VIS has expanded to provide noninsurance resources for members to manage their risks and improve their operations. By transferring the volunteer risk exposure to our program, we can help you protect your organization. Contact us today at (800) 222-8920 for more information on our programs and services. Join now for just over $2 per month!
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