The answer to the question “do nonprofits need insurance is a complex one, since each charitable organization faces unique risks. But, the answer is yes—just like any business, a nonprofit must have property and liability coverage to protect itself from the financial consequences of accidents and other unforeseen events. While it may be challenging to work out the best policies and limits, a qualified insurance agent can help.
Nonprofits have many different types of revenue streams, including donations, contracts, foundation and sponsorship grants, products, services and events. Each of these can dictate the type and level of insurance required. Some of the most common policies include:
Professional liability insurance – also known as errors and omissions (E&O) insurance—covers the legal expenses and settlement costs associated with negligence claims made against a charity by third parties, such as clients and donors. For charities that sell products as a means of raising funds, product liability insurance is important to consider.
Directors and officers insurance — usually included as part of a bundle policy that includes general liability and workers compensation — protects the management team of a charitable institution from lawsuits brought against them for wrongful acts committed in their capacity as leaders of the company. For organizations that manage volunteers, abuse and molestation liability insurance is a must.
Crime coverage, sometimes referred to as crime bonds, protects a charitable organization from theft by employees or volunteers. This is especially important for organizations that accept large cash and checks, which can be vulnerable to dishonest individuals. Many municipalities and foundations require this type of coverage before awarding grant money.
Non-owned auto insurance — also referred to as non-owned and hired auto insurance—is an optional policy that covers a nonprofit when an employee or volunteer drives their personal car on behalf of the company. This type of policy is necessary when volunteers go to pick up supplies, drop off donations or attend special events. It’s worth noting that most of these activities take place away from the nonprofit’s primary office, which is why this coverage is crucial.
Most special events and fundraisers are held off-site, which requires the use of transportation. This can be a van, a bus, a rental car or another mode of transportation. If an accident occurs, and the volunteer’s own auto insurance does not cover the claim or has very low policy limits, a nonprofit-owned auto policy will kick in. Non-owned auto insurance is often included as a part of a larger bundle policy, such as the popular business owners policy (BOP), which helps reduce the amount of paperwork and time it takes to get all of a nonprofit’s main policies in place.