Considering the shoestring budget on which nonprofit organizations operate, a single unexpected and large expense could lead to financial ruin. Therefore, buying the right nonprofit insurance to guard against the worst risk is a wise move for nonprofits.
Most nonprofits require Directors and Officers (D&O) insurance and General Liability insurance. Some nonprofits have workers’, and employees’ insurance, along with other insurance offered to employees as benefits like dental, health, and life insurance. The following are the types of insurance relevant to nonprofits.
General Liability Insurance
This policy insures your organization against the classic slip-and-fall scenarios. These scenarios are normally known as commercial general liability or CGL. Your organization receives compensation for damages that you are ordered to pay an individual who gets injured on the organization’s property. This kind of policy does not cover nonprofit employees. Employees are normally covered separately by the worker’s compensation insurance.
The policy covers claims alleging property damage or bodily injury caused by an accident. This policy consists of three parts: Coverage A, Coverage B, and Coverage C. Claims under Coverage A include injuries arising from an insured’s premises, injuries to visitors at special events, injuries to customers under the insured’s supervision, injury caused by the products the manufacturer or the insured sells, fire damage to the insured’s landlord building and damage of belonging not owned by the insured or in its possession.
Claims under Coverage B include libel, false arrest, libel, slander, wrongful eviction, malicious prosecution, wrongful entry, infringement of copyright, violation of privacy, and unauthorized use of an idea in advertising.
Claims under Coverage C include medical payments due to accidents at a nonprofit’s premises or at functions the nonprofit organization conducts off the premises unless it is limited to the designated building.
Directors and Officers Liability Insurance
Your nonprofit’s officers and board of directors could be personally named in a lawsuit against your non-profit alleging financial mismanagement or fraud. That policy usually covers wrongful acts including detention and arrest, slander, libel, defamation, trademark and copyright infringement, misappropriation of ideas or plagiarism, as well as defense costs.
Directors and officers liability insurance is usually payable to the officers and directors of an organization to cover damages and defense costs in the event that they are sued for wrongful acts listed above while they are working for the insured organization. D&O insurance is normally written on a “claim made” basis, meaning that the coverage is provided for a claim made against an insured during the term of the insurance policy.
If volunteers or staff use any motor vehicles including their own for nonprofit activities, Car-liability insurance is mandatory. In most cases, your state may need you to buy a minimum amount of coverage. The insurance company will pay for the injuries a driver causes to property and people while carrying out your company’s business. The laws and regulations may also require additional car insurance including uninsured/underinsured motorist coverage and personal injury protection.
Nonprofits are eligible for a good health plan for their employees. The provisions of the Affordable Care Act dictate that one rate is calculated for each individual within the organization. These rates may change significantly from one nonprofit to the other due to the average age of the worker covered and the mix of dependent coverage. The health benefits received depend on the type of plan by the organization.
Part-time staff working as few as 17.5 hours are also eligible for coverage. However, there should be at least one individual covered by the plan who is full-time. Consultants and independent contractors are usually not eligible for coverage.
A nonprofit organization’s first line of defense against fraud and theft should be a good system of internal controls. But no system is perfect, and employee dishonesty or fidelity bond insurance can be a relatively inexpensive safety net.
Fidelity bonds indemnify the employer against all loss of property and money that is sustained through dishonest and fraudulent acts committed by any of its workers. Whether they are acting alone or in collusion with other employees, the organization will receive compensation up to the coverage stated in the bond.
Any individual who is a plan fiduciary should be concerned. A plan fiduciary is any individual who is involved or who has control in the administration of an employee benefit in any way. As fiduciaries, they are held personally liable to the plan beneficiaries and participants for omissions or errors or any breach in their fiduciary duties as outlined in ERISA.
Property insurance policies are categorized into two: the ones covering direct property damage and those covering loss of income from direct damage to property. Assets covered include invaluable papers, real estate, money, securities, computer equipment, personal property, fine arts, machinery, and buildings under renovation or construction. If these assets are important to the nonprofit, you will want to protect your organization against damage or loss with an insurance policy.
Normally, a property policy covers many causes like water, lightning, fire, or wind, except those specifically left out in the policy such as earthquakes, floods, and nuclear war. Always read the policy carefully to ensure that the losses you want to be covered are not excluded by the policy language.
Product Liability Insurance
If your nonprofit sells products to customers- for instance, you raise funds selling sculptures or sell baking goods- consider purchasing product liability insurance. It will cushion your organization from lawsuits by clients claiming they were hurt by defective or unsafe products you offered. For instance, if a customer breaks a tooth on a walnut shell baked into a cookie or cuts his or her hand on a sharp end of a sculpture, this insurance will come into play. It will provide cover for the legal defense and a sizable portion of the damages.
Professional Liability Insurance
Just like D&O insurance, professional liability coverage safeguards against any liabilities arising from mismanagement of the organization and workplace-related claims like sexual harassment or discrimination. It covers not only the officers and directors but also volunteers, staff, and the nonprofit organization itself.