If you have been living or doing business in Clark County for any amount of time, you know that we have a unique community, and by that, I mean an awesome community. Nonprofits help our community respond to the unique challenges that we face together; from feeding the hungry to taking care of our furry friends. Our hearts are big and community leaders are not afraid to spend time, talent and treasures to continue to make this the best community around.
So, how do I best insure my organization and provide protection for the organization, my board and other volunteers? What a great question. Let’s take a look at both a startup nonprofit and one that is well established. Insurance is always customized to the specific insured, but the following is a great starting point for discussion.
The startup nonprofit
These organizations start up when an individual or a group has a passion that is so great that they need to start an organization to address a perceived need. Prior to getting insurance, a nonprofit must first apply for and receive a tax exempt status from the IRS. The most common of these organizations is referred to as a 501c3 and will provide donations to be tax exempt.
Many nonprofits are cash poor especially when starting, so they may want the minimum insurance available. If a nonprofit has a legally binding contract, those insurance requirements must be met to get the work. If no insurance requirements are forcing the issue, the following insurance should be considered at a minimum:
- General Liability – This coverage protects the organization if found to be liable to hurting someone, something or calling someone a name (property damage, bodily injury and advertising, and personal injury).
- Board of Directors Coverage (D & O) – Covers individuals who serve on the board of directors related to the management decisions they make on behalf of the organization.
Let me reiterate that this is basic coverage, but it should allow the nonprofit to get up and running at a minimum cost.
As a nonprofit grows in sophistication, so must its risk management and insurance solutions.
Here are some possible insurance solutions that should be considered in addition to those listed already:
- Property coverage to protect physical assets acquired by the organization:
- Consideration of both Earthquake and flood exposure
- Management liability in addition to Directors and Officers insurance, which may include:
- Professional liability if the nonprofit provides a service
- Employment practices liability, which protects the nonprofit from harassment, discrimination and wrongful termination
- Cyber liability, which protects the insured and its donors against the effects of potential hacking and data compromise
- Fiduciary liability should the nonprofit offer a retirement plan to its employee base
- Crime coverage, which protects assets from both internal and external risks
- Employee benefits coverage if employees are offered benefits, for example, if a mistake is made related to administering benefits.
- Sexual abuse and molestation coverage, which protects the entity in case of accusations of misconduct.
- Volunteer accident coverage, which helps protect those serving your organization.
- Liquor liability for all of those fund raising dinners and events.
- Auto coverage for any owned and non-owned auto exposures.
- Umbrella. This line of coverage speaks to the discussion of how much insurance (limits) are needed. This changes with each offering given the operations of the nonprofit.
It is clear that just because a business is a nonprofit it does not mean that the need to properly protect it is any different than any other for-profit business. What is clear is that a nonprofit will have specific and unique needs based on the population they serve and the services they provide. It is important to reach out to an adviser who specializes in this type of insurance and get the right advice to protect what is important to you.
As a local business owner and resident, thank you for the service you provide to this community that we are honored to be a part of.
Tony Johnson is a Certified Insurance Councilor (CIC) specializing in risk management for the business and nonprofit community, and can be reached at Davidson & Associates Insurance, (360) 514-9550 or Tony@Davidsoninsurance.com.