What is nonprofit insurance?
Nonprofit organizations, like all organizations need to protect themselves from risks and unforeseen events. With more involvement with the public and communities than any other organization, it makes them prone to unique risks and dangers. Some of the most common risks nonprofit organizations face are:
- Fraud, embezzlement, and misallocation of funds by employees or board members
- Negligence or breach of duty
- Accidents and workplace injuries
- Property and damage
- Data breach
Nonprofit business insurance provides coverage against these risks and other uncertainties.
Why do you need nonprofit insurance?
Insurance for not for profit organizations is essential. Nonprofits have a variety of stakeholders, including employees, donors, volunteers, and government regulators. Hence, a small misunderstanding with these parties can result in a lawsuit. More importantly, legal fees and damage settlements can drain organization funds very quickly. Therefore, proper coverage protects your organization, its assets, and stakeholders in these instances.
In addition, if your nonprofit is religious and you operate out of a church or any other religious organization, you can opt for church insurance.
What Does the Nonprofit Insurance Program Cover?
The risks and uncertainties of a nonprofit can surely be confusing. However, these policies are a must if you own a nonprofit.
Business Owners Policy (BOP):
A business owners policy (BOP) is a package policy that combines nonprofit liability insurance with commercial property insurance and business interruption insurance. The liability insurance covers claim against any property damage or bodily injury to third-party.
Commercial property insurance covers damages caused to business property, including equipment damage, fire, vandalism. Adding business interruption insurance to the policy covers any losses to the income due to temporary closure. So, purchasing a BOP is usually cheaper than buying standalone policies.
Commercial property insurance:
A commercial property insurance gives protection to your company’s premises and property. Hence, if your nonprofit owns any asset, including building, office equipment, furniture, computers, you should consider purchasing commercial property insurance. It covers costs of vandalism, theft, fire, or any losses made to the business property.
Commercial general liability insurance:
General liability insurance for nonprofit organizations is a must due to their involvement with the public. This insurance covers any damages made to a third-party by your business and your employees. Coverages include:
- Third-party bodily harm: The policy covers all costs, including medical bills, court settlements, 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 cost related to copyright and defamation lawsuits against the organization.
Commercial auto insurance:
If your nonprofit owns vehicles used for business purposes then commercial auto insurance is a must. It provides auto liability and physical damage coverage in case of an accident.
If your organization is at fault, auto liability pays for damage and injuries to the third-party. Physical damage covers any material loss of the organization owned vehicle. In addition, if your employees or volunteers use business vehicles, consider purchasing non-owned auto coverage.
Workers compensation insurance:
Workers compensation insurance provides payment to employees (full-time or part-time) in the event of injury, disability, or death caused on the job. The coverages include medical costs, loss of income, and death benefits. All states (except Texas) mandate that nonprofits should have workers compensation.
Keep in mind that volunteers, interns, and students-in-training might not be included in workers compensation because they are not your employees. In this case, you could add a volunteer accident insurance to protect the volunteers.
Professional liability insurance:
Professional liability insurance covers costs of claims caused due to work-related errors and mistakes, allegations of negligence, and failure to fulfill promised services. Professional liability insurance can help pay court fees, settlements, and other expenses in case of lawsuits. A report by National Center for State Courts claims that defending a professional malpractice lawsuit has a median cost of $122,000. Hence, it is essential for nonprofits that are involved in services like guidance and counseling.
Employment practices liability insurance (EPLI):
Employment-related lawsuits are one of the most common lawsuits. It occurs when workers claim a violation of their legal rights in the organization. As a resul, it can damage the organization’s reputation, finances, decrease employee morale, and disrupt business.
In an interview with Insurance Journal, Mike Liguzinski, divisional president of Specialty Human Services for Great American Insurance Group, reported that sexual-abuse related jury verdict averages to nearly $9 million in California alone.
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, and wrongful termination.
Directors and officers insurance:
D&O insurance for nonprofits, also called board member insurance, protects the board of directors against possible lawsuits.
According to The New York Times, President Trump was ordered to pay $2 million in damages for misuse of funds in Donald J. Trump Foundation.
Certainly, that shows an immediate need for this insurance for a nonprofit. D&O policy protects claims against the boards regarding:
- Misuse of funds
- Wrongful termination of an employee
- Claims of harassment
According to Towers Watson, around 63% of nonprofits have filed a D&O claim in 10 years. This insurance will cover legal defense costs and settlements for such lawsuits.
Cyber liability insurance:
Cyber liability insurance covers the damage of data, loss of income, cyber extortion, and reputation management.
Nonprofits maintain important digital financial files regarding donor details, client data, and employee records. As a result, it makes them vulnerable to possible cyber-attacks and data breaches. According to an article by Digital Thinking, the National Center for Charitable Statistics lost 740,000 records, which included IP addresses, account data and usernames when it was hacked in 2015.
A simple malware can cause significant financial loss to the organization. The NetDiligence Cyber Claims Study 2019 by RSM US showed that data breaches cost nonprofits $72,000 on average. Cyber liability insurance covers for possible damages when such incidents occur.
Product liability insurance:
If your nonprofit is involved in selling products to the public, consider product liability insurance. For example, you could have a bake sale for a fundraising event, and a customer falls sick after eating a pie. In essence, product liability insurance covers any financial and legal damages caused by these types of incidents.
Nonprofits regularly hold special events such as fundraising events, bake sales, and meetings. You could lose thousands of dollars in damages if something goes wrong in an event you host. Thus, you must have event insurance. Nonprofit insurance covers both bodily injury and property damage to the attendees.
Fiduciary liability insurance:
If your nonprofit provides additional benefits like retirement and health plans, fiduciary insurance is a viable option. It covers any losses or legal fees that arise due to claims against the fiduciary, including weak investment decision, and negligence of fiduciary duty.
Commercial umbrella insurance:
A commercial umbrella insurance provides additional limits over commercial auto liability, general liability policy, professional liability, or directors and officers liability. However, it is not a mandatory policy, but if your nonprofit operates on a large scale, you should consider purchasing it.
Additional policies to consider:
Nonprofits nowadays have been under litigation for numerous reasons. So, few additional insurances make sure your nonprofits and their stakeholders are protected sufficiently.
- Employee dishonesty and crime coverage: The 2018 Global Study on Occupational Fraud and Abuse by the Association of Certified Fraud Examiners claims that nonprofits victimized by occupational fraud have the smallest median loss of $75,000. This is a huge amount for organizations that operate on donations. Crime coverage helps the organization cover loss from employee theft or fraud. It would be best to extend the coverage to include volunteers and interns in if your nonprofit hosts them regularly.
- Volunteer accident insurance: If your workers compensation policy does not include volunteers, you should opt for a volunteer accident insurance. It provides coverage to volunteers in the event of injury, disability, or death in the course of your organizational work. In addition, it could be an essential endorsement if your volunteers do not have health insurance.
How much does insurance cost for a nonprofit organization?
Nonprofit insurance costs depend upon the size and activities of your nonprofit. In other words, activities and services of your nonprofit determines the type of liability and potential of claims you face.
These factors play a vital role in determining the nonprofit liability insurance cost: