Debunking Common Nonprofit Insurance Myths (2025 Update) Part 1

Navigating insurance is rarely a nonprofit leader’s favorite task. It’s easy to get lost in hearsay and outdated assumptions about what coverage you really need. The result? Some organizations end up underinsured and vulnerable, while others pay for policies they might not actually require. Let’s clear the fog by tackling common misconceptions, highlighting essential coverages, and pointing out what might be unnecessary or situational. By the end, you’ll have a clearer picture of how to protect your mission without waste, using up-to-date insights for 2025.

Common Misconceptions About Nonprofit Insurance

Misinformation can lead nonprofits to dangerously underestimate their risks or spend on the wrong protections. Here are some widespread myths, and the facts to debunk them:

• Myth: “We’re small and do good work, so we don’t face big risks.” Many assume a charitable mission or small size means immunity from accidents or lawsuits.  

• Reality: Nonprofits face many of the same risks as businesses – property damage, slips and falls, employee disputes – despite their altruistic goals​. Unfortunately, “bad things happen to good nonprofit organizations every day”, and no nonprofit is immune from something going wrong​ according to publiccounsel.org. Even a minor incident can lead to major costs if you’re uninsured.

• Myth: “State laws or volunteer waivers will protect us from lawsuits.” It’s true, some laws (like volunteer protection acts) give individual volunteers immunity in certain cases, but they don’t shield the organization itself​. In fact, only a handful of states offer broad liability protection to nonprofits, and most states do not according to nonprofitinsurance.co.

• Reality: If someone is injured or property is damaged, your nonprofit could still be sued – and without the right insurance, you might be on the hook for legal costs and damages.

• Myth: “Our volunteers are automatically covered under our policies.” Don’t assume that unpaid helpers are treated like staff under your insurance.  

• Reality: General liability (GL) might offer some limited medical coverage if a volunteer is hurt, but volunteers typically are not covered by workers’ comp and may not be fully protected by standard liability policies. If a volunteer gets injured or causes an accident, the nonprofit could be liable and should have specific coverage (like a volunteer accident or liability policy) to fill the gap​.​ In short, ask your insurer how volunteers are covered, rather than assuming.

• Myth: “A General Liability policy is enough to cover everything.” GL insurance is fundamental, but it’s not a cure-all. It mainly covers third-party bodily injury, property damage, and maybe basic personal injury like libel.  

• Reality: It won’t cover things like wrongful management decisions, employment lawsuits, or auto accidents. For example, a stand-alone GL policy won’t protect your directors/officers from lawsuits, nor will it cover employee discrimination claims​. Believing “GL is all we need” can leave huge exposure gaps.

• Myth: “Only big nonprofits need Directors & Officers insurance.” Some small nonprofits skip D&O insurance to save money, thinking lawsuits target only large organizations.  

• Reality: Even tiny charities have boards and make decisions that could be challenged. Volunteers, donors, employees, or beneficiaries can sue over mismanagement, misuse of funds, or wrongful acts no matter the organization’s size​. D&O insurance protects both the organization and the personal assets of your board members if such suits arise​ according to travelers.com. Nearly two out of three nonprofits have faced a D&O liability claim in the past decade​ – it’s not just a large NGO problem!

• Myth: “Cyber insurance isn’t necessary for nonprofits.” In 2025, every organization uses email and stores data, yet a myth persists that hackers won’t bother with nonprofits.  

• Reality: Nonprofits often hold sensitive donor info or client records, and they typically have weaker cybersecurity, making them inviting targets​. A data breach can wreak havoc. The average total cost of a breach is now around $7 million (roughly $221 per compromised record)​ according to travelers.com. Cyber liability insurance helps cover notification costs, credit monitoring, legal fees, and more after a breach​. Ignoring cyber risks today could be a costly mistake, even for a small community charity.

• Myth: “If we ever get sued, our board members aren’t personally at risk.” Many trustees join boards unaware that in a lawsuit, their own assets could be exposed. Yes, well-written bylaws and state laws can offer some indemnification, but without D&O insurance, board members might have to hire their own lawyers and cover damages out-of-pocket​ according to travelers.com.  

• Reality: One lawsuit could jeopardize their home or savings. The Volunteer Protection Act doesn’t eliminate personal liability if a board member commits a grossly negligent act or if the nonprofit hasn’t indemnified them. In short, your leadership shouldn’t bet their house on a myth, and they need protection.

• Myth: “Insurance is a luxury we can’t afford, we’ll just hope for the best.” It’s understandable to worry about tight budgets. However, skipping essential insurance is playing with fire.  

• Reality: One hefty claim can cost far more than years of insurance premiums. (For example, an employment lawsuit might cost six figures in settlements and legal fees,​ according to greatamericaninsurancegroup.com, an expense that would dwarf a D&O policy premium.) While it’s true the insurance market is challenging (nonprofits have seen premiums jump 25% or more recently in a “hard market”​), going uninsured or underinsured could shut your doors after one incident​. The cost of not having the right coverage is simply too high when “the unexpected” inevitably happens.

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