Insuring A Non-Profit

Thinking of starting a new Nonprofit?

One of the first things you should consider, in conjunction with the organizational plan and financial projections, is how do I identify, manage and insure my risk? Any organization in operation is susceptible to loss and, despite efforts to prevent it, accidents will happen.

Nonprofits have a wide range of special needs due to grant funding, fundraising, use of volunteers and mission based services. Having an insurance and risk management plan is an essential key for every Nonprofit. It is up to you, along with consultation
with an insurance broker, to determine which products are economical and best matches your nonprofit’s particular exposure. It is also important to note that even with the most comprehensive insurance program, there are still some uninsured risks in
every organization.

Insurance is a contract (policy) meant to provide financial protection against a particular risk of loss. There are several types of insurance available to Nonprofits. Insurance policies are generally referred to as either third-party insurance or first-party insurance. First-party insurance generally covers losses of the organization’s assets, while third-party protects against claims made by a party other than the organization.

Below are some insurance products that may be used by a Nonprofit:

Directors and Officers
Third-party insurance covering liability arising from certain kinds of “wrongful acts” committed by a nonprofit or its directors and officers. If endorsed, it may cover employment discrimination claims.

Workers’ Compensation
Statutory coverage providing wage replacement and medical benefits for work related injuries to employees, regardless of fault. The cost of this insurance is mainly rated based on payroll, type of service and past history of claims.

General Liability
Third-party insurance that covers physical injury or property damage claims by a third party, based on their loss (ie, slips and falls)

First-party insurance that protects against loss of, or damage to, the organization’s property.

Auto Physical Damage and Liability
Has first-party and third-party functions in insuring an organization‘s risk of loss, arising from the ownership and use of motor vehicles. Even if the nonprofit does not own a vehicle, it should obtain “hired and non-owned” coverage. It provides coverage in the event the organization faces a claim from an employee or volunteer driving their own or a rented vehicle on behalf of the organization.

Volunteer Accidental Medical
Third-party insurance to assist in compensating volunteers who are injured while performing volunteer services for the nonprofit.

The amount (premium) a nonprofit pays for most insurance coverage varies based on the organization and its operations, and is in part calculated based on the organization’s experience and claims history. Many insurance policies are also “auditable”. This means the insurance company has the right to audit the nonprofit’s activities at the end of the policy period to determine variations in the information used on the application to calculate premium (ie, workers’ compensation).

It is crucial for any organization to incorporate risk management and insurance in the beginning planning stages with the board and senior management to ensure appropriate coverage, risk mitigation and comprehensive financial planning. Insurance and risk management plans should be reviewed annually and adjusted if needed to account for changes in activities, financials and property.

by Lisa L. Laday-Davis, CPA CPCU ARM-P ARe:
Davis Insurance Agency, Inc./DavTech Risk Solutions, Inc.