Insurance for Nonprofits: A Detailed Guide

Nonprofits depend on donor support to carry out their projects and activities, leaving a tight budget for day to day operations. As such, a single unforeseen expense can lead to the financial unravel of a nonprofit organization. 

If you run a nonprofit, are you protected against common industry risks? If you’re not familiar with insurance specifically for nonprofits, don’t worry; you’re not alone. However, the risks for nonprofits are all too real. 

• One out of every 100 nonprofits will file a claim under D&O insurance this year. 
• The average cost of settling such a claim (without going to court) is $28,000.
• 10% of such claims end up costing the inflicted nonprofit more than $100,000.

Keep reading to learn more about the risks nonprofits are exposed to and why insurance is so important for this industry.

Do Nonprofits Need Insurance?

Nonprofits work with the public, organize events, and raise money through the generosity of donors. Nonprofits also typically have deep contact pools that include the names of donors, government officials, regulators, vendors, volunteers, and employees. This equates to multiple forms of exposure (and multiple potential claim scenarios).

For example, injuries at events can lead to litigation. According to the nonprofit news magazine Blue Avocado, 90% of all lawsuits brought against nonprofits are the result of physical injury on the organization’s premises. 

Employees can also be the source of a nonprofit insurance claim. The NonProfit Times reported the story of Marla Pietrowski, who sued her former nonprofit employer for wrongful termination when she was let go after exposing a coworker’s inappropriate comments to her supervisors. Pietrowski was awarded $1.5 million in punitive damages by a Philadelphia jury.

Fraud is unfortunate common ground between nonprofits and another common cause of litigation in the nonprofit sector. Over 20% of nonprofits who uncover fraud from within the organization end up in court.

As a nonprofit, it’s impossible to predict if or when an employee, vendor, donor, or a regulating body will file a claim against your organization. It’s also important to note that your nonprofit doesn’t have to be guilty of an accusation to suffer from a lawsuit. Defensive legal expenses are often out of a nonprofit’s budget.

If you were met with a lawsuit tomorrow, could you cover all its associated costs? Securing insurance coverage before such a scenario comes to life can make all the difference in the future of your organization (and the people it helps).

Insurance for Nonprofits — 7 Policy Types to Consider

Insurance coverage comes in various forms. Depending on the nature of your organization, you might require one or more insurance policies to cover the key areas of potential liability. 

Browse our list of common insurance policies that your nonprofit may benefit from.

Employment Practices Liability

Employment practices liability Insurance coverage, also known as EPL insurance, provides protection when a claim is made over an unjust termination, workplace harassment, discrimination (of any sort), breach of contract, or wage law violation.

Let’s say an employee of your nonprofit brings up concerns about derogatory slurs another employee has been making. Rather than terminating the employee in question, you let the concerned employee go. Should they sue you for wrongful termination, EPL insurance can help cover the damages.

Directors & Officers Insurance

Commonly referred to as D&O insurance coverage, directors & officers policies protect board members and officers if litigation is brought forth addressing a decision or deliberate action resulting in financial loss. This could include failure to perform official duties or mismanaging funds.

For example, a large donor believes your organization is misusing its funds. They bring forth a lawsuit against your organization’s board. D&O insurance coverage can help pay for defensive legal fees and other legal expenses, including a settlement if necessary.

General Liability Insurance

A general liability insurance policy provides protection in the event of bodily injury, advertising injury, and property or reputation damage resulting from your organization's operations, products, or premises.

Imagine this scenario. During your office's renovation, a visiting donor trips over some building materials. She injures her wrist and sues for the medical costs. With a general liability insurance policy, you can relax a bit knowing the associated costs of the claims should be covered. 

Professional Liability Insurance

Professional liability insurance coverage protects you against claims of professional errors and neglect. This type of policy covers a claim against alleged or actual damages incurred due to erroneous advice or service provision, misrepresentation, or violation of good faith.

Let’s say your nonprofit services entrepreneurs. You provide a new client with market research to help them launch a new product. Unfortunately, your analyst botches a few numbers, and the entrepreneur suffers financial loss as a direct result. They file a claim for the damages. Professional liability insurance provides coverage for professional misconduct claims like this.

Auto Insurance

Auto insurance coverage is vehicle insurance for your organization's cars, trucks, cargo vans, motorcycles, and any other vehicle that you may need for your operations.  This policy provides financial coverage for your vehicle in the event of theft, physical injury, or property damage.

For example, your cargo van is loaded with equipment to be transported from your premises to a fundraising event. Your driver hits another vehicle, causing injury to the driver and damage to both vehicles. Auto insurance will help cover the damages.

Employment Dishonesty

Also known as crime coverage insurance, employment dishonesty insurance protects an organization against the damages caused by fraudulent activities of its workers, including money embezzlement, computer fraud, data breach, and theft of securities.

For example, an audit of your accounts reveals an employee is stealing donations. As the news breaks, several donors bring forth lawsuits. Employment dishonesty insurance can help cover the damages.

Workers' Compensation

Workers' compensation insurance coverage helps with liability claims made by employees who fall sick or get injured on the job. It also covers lost wages resulting from the incident and may be legally mandatory in your state. If you have employees, start here to learn if your state requires nonprofits to carry workers’ compensation insurance.

Let’s say a fundraiser you’re holding attracts a large group of protestors. Tensions have been rising all day and a fight eventually breaks out. One of your employees is injured after being pushed by a protestor and is rushed to the emergency room. They’re unable to work for several weeks as their injuries heal. Workers’ compensation will cover medical fees and lost salary as well as any legal fees should the employee take you to court.

Finding the Right Insurance for Your Nonprofit

Nonprofits are fueled by their commitment to making a difference. Unfortunately, good deeds and passion for change don’t protect or defend against the legal risks of working with people and money. Insurance coverage is always recommended for a non profit.

And because every nonprofit has a unique structure, goal, and operational process, speaking to an insurance broker about the best type of insurance for non profits is also recommended. Work with our business insurance agents to get the information you need, we can discuss your general liability insurance, property damage coverage, sexual harassment, and much more. Reach out to Balsiger Insurance for help securing an insurance policy designed for a non profit’s needs and budget.