Insurance for Your Nonprofit: What You Need to Know

While starting a nonprofit can be an exciting endeavor, having best practices in place to protect your organization is a necessary precaution all founders must take. Equally important to the mission you have set out to serve, is protecting the organization and people who are committed to that mission. When you’re first starting as a nonprofit founder, commercial general liability insurance is the first type of coverage you will want to consider. 

As your nonprofit grows and you bring on board members, employees, and independent contractors, you will need to select additional types of insurance that provide broader coverage. As always, Resilia’s here to guide you every step of the way. Let’s look at what you need to know to secure the proper insurance for your nonprofit.

Types of Insurance Coverage for Nonprofits

Commercial General Liability

Let’s start with liability. Liability insurance protects your organization from claims alleging negligent conduct by the nonprofit, its employees, volunteers or agents. The most common liability policy purchased by nonprofits is the commercial general liability policy (CGL). CGL covers claims against bodily injury, property damage, personal injury offences for libel, slander, defamation, or malicious prosecution, and advertising injury (libel, slander, or copyright infringement due to advertising activities). 

Directors & Officers Insurance

Your board members will play a vital role in the life and health of your nonprofit. Board members may be exposed to a number of personal liabilities even as they volunteer their time for your nonprofit, and you may want to ensure they are protected against any potential legal liabilities. Directors & Officers Insurance (D&O) was designed to protect nonprofits’ leaders (both current and past) from lawsuits and litigation. It covers defense costs and damages (awards and settlements) from wrongful acts, allegations, and lawsuits brought against your company’s board of directors and/or officers. 

Workers Compensation Insurance

If your nonprofit organization has any full-time or part-time employees, or you plan to hire in the future, your state law likely requires that you have a workers’ compensation policy. If someone on your staff is injured in the workplace, workers compensation insurance will pay for medical care and lost wages. It’s important to note that workers comp covers volunteers and isn’t reserved only for paid members of your staff. Injuries within the nonprofit sector can vary depending on your specific industry and the type of operation of your nonprofit. If you have employees, you’ll want to ensure that your D&O policy includes employment practices liability (EPLI) coverage. Most nonprofit D&O policies include EPLI coverage. Employment-related claims are the most common type of D&O claims filed against nonprofits. 

Business Auto Insurance

If your nonprofit owns any vehicles, you’ll need a business auto policy (BAP) to cover the vehicles for auto liability and physical damage. If your nonprofit doesn’t own any vehicles, then you’ll need to purchase hired and non-owned auto liability coverage. You can often purchase this coverage as part of a package policy that includes commercial general liability (described above - and again, this is if your nonprofit doesn’t own any vehicles). This coverage protects the organization (not the driver or vehicle owner), when the person is acting on behalf of the organization and has a car accident. 

For example, if a volunteer is driving her own car on behalf of the nonprofit (such as driving to the bank or attending a special event) and has an accident, her personal auto insurance will pay for the claim first. If the volunteer’s personal insurance is inadequate to cover the amount of the loss (the member doesn’t have auto insurance, has very low policy limits or causes a catastrophic loss), the non-owned auto policy would protect the nonprofit for its extent of the loss. This is an important part of coverage that you don’t want to overlook, especially if you have volunteers or people who are hitting the roads on behalf of your mission! 

Commercial Property Insurance

A commercial property policy covers the property (furniture, fixtures, office equipment, stock, etc.) that the nonprofit owns from fire, theft, and natural disasters. If your nonprofit owns any computers or electronic equipment, you should consider a computer or electronic data processing policy. A computer policy offers broader coverage for computer equipment such as loss due to power surges, head drive crashes, and possibly viruses. Trust us, we’ve seen it happen.

Keep in mind that most property insurance does not include flood insurance. If your nonprofit has an office based in an area prone to flooding, make sure you take into account what your property insurance policy entails. 

Business interruption coverage can also be included with a property insurance policy, and can be crucial for nonprofits as they usually operate on limited budgets and interruptions, similar to what we witnessed during COVID-19, can be devastating to nonprofits. 

Crime or Employee Dishonesty

A crime policy (also called employee dishonesty) covers theft by employees. You may be able to extend that coverage to also cover volunteers.

Business Owners Package Policy

Your organization may be able to purchase a business owners policy (BOP) or commercial package policy that combines the general liability, property, and crime coverage into one policy. These package policies are usually more economical than purchasing separate policies. Your insurance advisor (agent or broker) can help you with this.

Before you begin the process, it’s important to work with an insurance broker who is well versed in insuring nonprofits, as the legal requirements for insurance for nonprofits differ from those of businesses and public entities, and vary from state to state.