Whether you’re starting up a not-for-profit organization or your nonprofit has existed for years, you may have questions about insurance. For starters: What kind do you need? How much? Are you required by your state or by grantmakers to carry certain coverage?
Much depends on your organization’s size, scope and programming. But your goal should be to carry what’s required to meet any regulatory or funding mandates and to address legitimate risks. Although there are many types of insurance available to nonprofits, it’s unlikely that you need all of them.
The essentials
One type of insurance you do need is a general liability policy for accidents and injuries suffered on your property by clients, volunteers, suppliers, visitors and anyone other than employees. Your state also likely mandates unemployment insurance as well as workers’ compensation coverage.
Property insurance that covers theft and damage to your buildings, furniture, fixtures, supplies and other physical assets is essential, too. When buying a property insurance policy, make sure it covers the replacement cost of assets, rather than their current market value (which is likely to be much lower).
Depending on your nonprofit’s operations and assets, you might want to consider such optional policies as automobile, product liability, fraud/employee dishonesty, business interruption, umbrella coverage, and directors and officers liability. Insurance also is available to cover risks associated with special events. Before purchasing a separate policy, however, check whether your nonprofit’s general liability insurance extends to special events.
Biggest threats
Because you’re likely to be working with a limited budget, prioritize the risks that pose the greatest threats. Then discuss with your financial and insurance advisors the kinds — and amounts — of coverage that will mitigate those risks.
Be careful not to assume insurance alone will address your nonprofit’s exposure. Your objective should be to never actually need insurance benefits. To that end, put in place internal controls and other risk-avoidance policies such as new employee orientations and ongoing training.
Don’t go overboard
Some organizations buy more insurance coverage than they need, which can be costly. Make sure you’ve thoroughly analyzed your nonprofit’s risks and buy only what’s necessary to protect people and assets.
This material has been prepared for informational purposes only, and is not intended to provide, nor should it be relied upon for, legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.
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