Nonprofit organizations involve large amounts of people in different roles. These individuals are not always employees. A range of nonprofit insurances protects those individuals and the organization in the event of accident or mismanagement.
Depending on your nonprofit’s location, states, municipalities, and even foundations require different types of insurance. Besides the obvious choices like general liability and health insurance, a nonprofit may need insurance coverage for events, volunteer activities, malpractice, and products.
In this article, we will discuss how insurance can help a nonprofit fulfill its vision, why it may be challenging to find the right insurance for your organization and the different types of nonprofit insurance you can research independently.
How can insurance help nonprofits fulfill their vision?
Nonprofits are a unique part of the United States economy. Unlike for-profit organizations, the goal is not to enrich the leadership but to further the nonprofit’s mission and vision. All excess revenue is returned to the nonprofit for that goal.
A nonprofit’s vision is the shared belief of internal and external shareholders about the organization’s future. Key players to a nonprofit’s vision include employees, volunteers, board members, donors, foundations, vendors, and corporations. Each of these groups plays a vital role in building community partnerships and strengthening the organization. To learn more about nonprofit community partnerships, read more here.
With such a varied group of individuals, accidents and other issues can have catastrophic effects.
Nonprofit organizations have big goals and visions for the future. Some may even say these dreams are impossible, but that does not stop these nonprofits from working towards their goals. Leadership for these groups is expected to fulfill that vision through any means possible.
Directors and board members are often faced with small budgets, few full-time employees, and high expectations from donors. They are responsible for public relations, fundraising, budgeting, and setting human resource policies. These leaders are also in charge of overseeing all programs and services of the organization.
The need for creative thinking and multiple revenue streams keeps nonprofit leaders busy, and because of this, mistakes and accidents can happen. Having the right insurance coverage is crucial to protect your nonprofit organization from unseen and unplanned financial setbacks.
Why is the right insurance hard for nonprofits to find?
Despite nonprofits being the third largest employer, behind retail and manufacturing, support for finding the right nonprofit insurance is difficult to obtain. Finding a specialist willing to look at insurance options based on the organization’s specific needs is the best option for nonprofits, but these specialists can be hard to find.
Very few insurance companies specialize in nonprofit insurance. Sexual abuse cases and small budgets have scared off many companies. Other concerns come from liabilities that might occur because of a nonprofit’s mission and the variety of people and locations that may need coverage because of special events and other funding sources.
Here are a few ways nonprofit insurance is different from other insurances:
Unlike for-profit companies, almost every nonprofit relies on volunteers to help with their events, programs, and services. This can be a tricky area for insurance companies since the liabilities to cover non-employees are much larger.
Special events and fundraisers
Most special events and fundraisers do not take place in a nonprofit’s primary location. Depending on the event’s size, locations can range from donor’s homes to municipal buildings to larger hotels and event venues. Insurance is needed to cover these locations and any individuals who work and attend the events.
Nonprofits are also unique in our economy because of the multiple revenue streams. Donations, grants, sponsorships, products, and services can all be a revenue source for a nonprofit organization. These multiple revenue streams can dictate the level or limits of coverage that nonprofits must-have.
What types of insurance should nonprofits get?
Each state and municipality may have different requirements for nonprofit insurance. While finding a specialist is the best course of action, every nonprofit can research a few types of insurance on their own.
It is best to look at your nonprofit organization for any specific areas of risk before purchasing insurance. The following types of insurance cover various areas of risk and provide nonprofits with protection in case of emergency or mismanagement.
1. Health Insurance
Health insurance is always the first on people’s minds when discussing insurance.
Among nonprofits with fewer than 50 employees (two-thirds of all nonprofits), 47% offer health insurance for their employees. The cost of providing health insurance may seem high, but it is essential for employee retention and job satisfaction. It is harder to leave a job that offers quality health insurance.
When thinking long-term, the cost of replacing an employee is 20% of their salary. This cost is higher than the 80% of an employee’s health premium a company may pay.
Organizations with more than 50 full-time employees are penalized by the Affordable Care Act (ACA) if they do not provide health insurance options. For those with less than 50 full-time employees, the ACA currently offers a Small Business Health Options Program (SHOP) for nonprofits and small businesses.
2. General Liability Insurance
General liability insurance or “commercial general liability” is a necessary insurance policy for nonprofits. Nonprofits rely on volunteers and vendors for many activities. In only one event, your organization may host dozens of volunteers, and a handful of vendors, along with hundreds of attendees. This influx of guests on a nonprofit’s property, or an outside location, increases the chance of something happening. General liability coverage protects the nonprofit in case of an accident or injury.
3. Property Insurance
Not all nonprofits own their property, but whether you rent or own, property insurance can offer essential protection in cases of natural and human-made disasters. When searching for property insurance, make sure your policy protects more than just the land and building.
Nonprofits continue to face the realities of small budgets. In case of disasters that damage the equipment and accessories a nonprofit relies on; it is vital to find a policy that does not just pay market value.
To rebuild after such a catastrophic event, nonprofits need insurance policies to cover the cost of replacing items like fixtures, equipment and machinery, office furniture, computers, and inventory and supplies.
4. Auto Insurance
Auto insurance is often-overlooked insurance for nonprofits, but if your staff or volunteers use a vehicle for any nonprofit activity, you are liable. This includes their own car.
If your nonprofit has a vehicle, insurance coverage is required. Still, whenever a volunteer or employee drives their own car for a nonprofit activity, it is important to know about their personal insurance coverage.
Volunteer activities like taking seniors to a doctor’s appointment obviously need insurance coverage but think of all the times an employee or volunteer has taken a trip on your behalf. Whether it is bringing meals or library books to a family, dropping off or picking up an auction item, or visiting local companies to find sponsorships and in-kind donations, your nonprofit could be in danger without auto insurance coverage. If the volunteer or employee’s auto insurance does not entirely cover an accident, your nonprofit can be named in a lawsuit.
In these cases, non-owned auto insurance is critical to make sure all loopholes are closed.
5. Professional Liability & Directors and Officers (D&O) Insurance
Professional Liability Insurance is also called “errors and omissions” or “malpractice” insurance. Malpractice insurance may bring up visions of doctors or lawyers, but this insurance can be just as useful for nonprofits. There are times when nonprofit directors, officers, staff, or volunteers may behave or are accused of inappropriate behavior. In these cases, your nonprofit is in danger of being sued. Professional Liability Insurance protects directors, board members, staff, volunteers, and the nonprofit organization itself in these cases.
Directors and Officers (D&O) Insurance is another form of protection for nonprofit leadership. It is generally assumed to be needed by larger corporations but is just as crucial for nonprofits.
According to a survey by the Insurance Information Institute, out of the 31% of companies with a D&O claim against them, 58% were nonprofits. The average claim for these cases was $35,000, with one out of every ten reaching $100,000.
According to Massnonprofit.org, D&O protects against any actual or alleged act or omission, error, misstatement, misleading statement, neglect, or breach of duty by an insured person. It also covers personnel issues, including discrimination, wrongful termination, harassment, failure to provide services, and mismanaging assets.
Because nonprofits offer a lower salary and reliance on volunteers, the chance of hiring an officer or having a board member with no leadership background is high. The relaxed environment common to most nonprofits also allows for mismanagement. For more information on Ethics and Accountability for Nonprofit Organizations, check out our blog here.
In 1997, the Volunteer Protection Act passed to protect volunteers against allegations of harm if they didn’t receive any funds beyond a refund for what they may have paid themselves. The Volunteer Protection Act does not always cover mismanagement cases and will not cover the defense cost for those being sued. D&O insurance protects the personal assets of corporate directors, officers, their spouses, and the nonprofit as a whole in the event of being sued.
6. Product Liability Insurance
Many nonprofits sell products to raise additional funds. In fact, this revenue source is the best method to build a sustainable organization. Goodwill and Habitat for Humanity Restore are two of the better-known examples of this, but with the growth of e-commerce, more nonprofits are looking into this revenue source.
Product liability insurance is crucial if your organization sells any products. Regardless of the product’s size and cost, this nonprofit insurance protects you against lawsuits by customers claiming injury by your product. Product liability insurance also covers the legal defense and a large portion of the damages in case you are found at fault.
7. Crime Coverage
Crime Coverage or Crime bonds are other areas of insurance coverage that are not well-known. No one wants to think about it, but by working with large amounts of people, nonprofits are in danger of unscrupulous individuals. In the case of nonprofits losing money to employee theft, crime coverage replaces the stolen funds and helps protect your organization from events like this happening in the first place.
Having this type of nonprofit insurance assures donors that the money they give is safe. Many municipal contracts or foundations require proof of this coverage before awarding grants.
8. Cyber Liability
Cybertheft stories have regularly made headlines. People’s fear of their own personal finances drives these stories. Nonprofits may not have this at the top of their minds, but some nonprofit organizations are more in danger of cyber theft than you may realize.
Nonprofits collect vast amounts of confidential data from donors. All donor databases must have the amounts and dates of a donation and a way to contact the donor. A useful database will collect additional information, like family members’ names, birthdays, the donor’s personal passions, and the names of other organizations they support.
This information is a treasure trove for cyber thieves and a turn-off for potential donors worried about cybersecurity.
Cyber liability protects your nonprofit and the donor from cyber theft and can provide peace of mind for your donors. Learn more about cybersecurity and how you can address risks to your nonprofit.
Finding the right nonprofit insurance can be challenging. Coverage liabilities that come from the organizations’ mission, staffing, and a heavy reliance on volunteers can make the process daunting.
The best option for finding the right nonprofit insurance is to find a specialist who understands your organization’s specific needs. Unfortunately, these specialists are difficult to find, and many insurance companies have stopped offering nonprofit’s insurance because of higher liabilities and lower budgets.
We hope this list of insurance coverage options helps give nonprofits a starting point to start your research. Visit our Nonprofit blog for more nonprofit resources and tips and learn more about Donorbox‘s online fundraising options.