While a nonprofit’s goal may be to provide good in the world rather than make a profit, it’s still a business and needs to protect itself from risks. It also operates on a shoestring budget and the loss of even one major expense could financially ruin it. The answer to the question of do nonprofits need insurance is a resounding yes, and there are many types of policies that can help.
The bare essentials for any nonprofit organization are general liability and directors and officers (D&O) coverage. These two policies protect against negligence, which is the basis for most lawsuits against nonprofit organizations. Liability policies cover claims of bodily injury or property damage, and some also offer coverage for reputational harm, advertising injury, and copyright infringement. D&O coverage, which is usually paired with employment practice and fiduciary liability coverage, protects directors and officers of nonprofit organizations from being sued over decisions they make on behalf of the charity.
Another coverage that is very important for nonprofits to consider is business interruption insurance, which covers lost income due to an unexpected event such as a fire or flood. It can be purchased separately or bundled with a commercial property policy. This type of protection is vital for a nonprofit, because it helps them maintain their mission and service to the community in the event of a disaster.
A nonprofit’s most valuable assets are its people and property, so it is critical to ensure that they are protected. Nonprofits must be sure to have workers’ compensation insurance in place for employees, as well as a commercial auto policy covering rented and non-owned vehicles. If a nonprofit has volunteers, it should be sure to have volunteer insurance in place that offers liability coverage in the event of an accident caused by a volunteer.
Finally, a nonprofit should be sure to have a cyber liability insurance in place, because data breaches are all too common and can put sensitive information at risk. This policy can protect the charity from financial loss caused by a data breach, and it can help it regain confidence with donors and funders who may have lost trust in the organization after learning of a breach. Often, this type of coverage is offered at an affordable rate when it’s bundled with other policies. It is always a good idea to consult with an expert risk advisor to review the specifics of a nonprofit’s insurance needs and determine what type of policies are required. An experienced advisor can help the nonprofit create an efficient, cost-effective policy that will provide peace of mind and security in the event of a catastrophe. In the current “soft” insurance market, it’s especially easy to find a competitively priced, comprehensive policy. An expert can also help the nonprofit avoid expensive mistakes by highlighting potential gaps in coverage. They can also advise the nonprofit on ways to reduce exposures and lower premiums. They can also recommend an effective deductible amount to minimize the risk of large, unanticipated losses.