For many small or start-up organizations, nonprofit insurance costs seem excessive and the benefits of the coverage nominal. However, the expense of the insurance coverage is outweighed by the importance of having coverage in place. The following are just some of the reasons why all Nonprofits, regardless of size, need to have appropriate insurance coverage.Social Responsibility
All Nonprofits exist to provide a benefit to their community and society as a whole. Suppose a Nonprofit organization, its employee, or volunteer causes financial or physical harm to a community member through negligent action and cannot satisfy their legal, financial obligation to that individual or organization. In that case, clearly, the organization is not working in the best interest of the community. So, regardless of the good works done for the community, the organization has failed to live up to its full responsibility to the community.
Directors, officers, volunteers, and employees
All organizations should protect and indemnify their board members, even if the indemnity requirement is not included in the organizational Bylaws. Organizations must protect their board members, volunteers, and employees from financial loss, uninsured injury, and third-party claims.
Types of coverage Nonprofits should consider
General Liability coverage is the cornerstone of any insurance program. The day your Nonprofit begins operations, there is the potential to cause physical injury or property damage to a third party. Even if the claim is specious, legal fees can easily bankrupt a small organization. It is possible that legal costs and damages may become the responsibility of organization board members or officers.
Although most small or start-up Nonprofits do not own vehicles, they still have a potential for auto claims. Anytime anyone from the Nonprofit drives on behalf of the organization (even a trip to the store or the post office), there is a chance of an at-fault auto accident. The Nonprofit will invariably be held responsible for any excess damages over the insurance on the involved auto and will have to pay legal defense costs. Volunteer protection act legislation does not protect volunteers or organizations from auto-related claims and damages. In some states, Nonprofit organizations are required to carry auto coverage. Again, any uninsured claim may bankrupt the Nonprofit, and damages may become the board member's and officers' responsibility.
If your organization has employees, you will need Workers Compensation insurance. Both state and federal insurance requirements will apply, typically mandating that you pay for workers' compensation and unemployment insurance, and possibly for disability insurance as well. Workers Compensation coverage is mandatory in every state except Texas.
Volunteer Accident Coverage
Many small or start-up Nonprofits operate with volunteer labor exclusively. While waivers and volunteer contracts offer some protection, a Volunteer Accident policy may be a backstop against lawsuits filed by an injured Volunteer against the organization.
Directors and Officers Liability Insurance
Some Nonprofits believe that if they purchase Directors and Officers coverage, they will protect their Board and organization from all other claims, including General Liability and Auto claims. This is just not the case. Bodily Injury and Property damage claims are expressly excluded. Auto-related claims of any type are usually excluded. Claims against the organization or its Board for failure to insured or failure to insure adequately are often excluded as well. These exclusions potentially put your board member's assets at risk. Additionally, many organizational Bylaws require that you indemnify your board members for any potential damages.
WOW-what should I do?
It is not enough to talk to your local insurance agent about insurance coverage for your Nonprofit. Local brokers seldom have specialized coverage knowledge and market access to properly construct an insurance program for your Nonprofit. Coverage for Nonprofits has unique elements and should be issued through an insurance company specializing in insurance programs for Nonprofits. Most importantly, consult with an agent or broker that works with Nonprofits exclusively.