Debunking Common Nonprofit Insurance Myths (2025 Update) Part 2

Essential Insurance Coverages Nonprofits Actually Need

Now that we’ve busted some myths, let’s talk about what coverage is truly essential for a nonprofit organization. Every nonprofit’s exact needs differ, but several types of insurance are widely considered “must-haves” to protect your mission:

• General Liability (GL): This is the foundation. A GL policy protects the organization if a third party (like a client, visitor, or participant) claims your nonprofit caused them bodily injury or property damage. For instance, if someone slips at your office or a booth collapses at your event, GL covers medical costs or legal claims. It also typically covers “personal/advertising injury” (e.g. libel or slander) that your nonprofit might be accused of​. Every nonprofit, even all-volunteer ones, should carry GL insurance​. Industry experts recommend at least a $1 million per-occurrence limit​.

• Directors & Officers (D&O) Liability: D&O is crucial for any nonprofit with a board or officers (which is virtually all nonprofits, even small ones). It covers lawsuits alleging wrongful acts, mismanagement, breach of fiduciary duty, or other errors made by directors or officers​. Importantly, a good D&O policy also protects the nonprofit itself and often covers Employment Practices Liability (EPLI) – meaning claims by employees or volunteers for things like harassment, discrimination, or wrongful termination​. Without D&O, your organization and board members would have to pay to defend these suits on their own. Given how common these lawsuits are (from donors, employees, even regulators)​, D&O is a non-negotiable for risk management.

• Workers’ Compensation: If you have employees, workers’ comp insurance is typically required by law (states mandate it once you have a certain number of staff – often even one employee triggers the requirement)​. Workers’ comp covers medical bills and some lost wages if an employee is injured on the job. For example, if your staffer injures their back lifting boxes at the food pantry, workers’ comp will pay for treatment and rehabilitation, and in return the employee usually can’t sue the nonprofit for the injury. Note: Standard workers’ comp usually does not cover volunteers, so you may consider separate volunteer accident insurance for them​. Volunteer accident policies are inexpensive and can pay a volunteer’s medical costs if they get hurt while helping you, serving as a goodwill protection.

• Auto Liability (and Non-Owned Auto): Does your nonprofit use vehicles for any activities (deliveries, transport of clients, errands)? If you own vehicles, you need a commercial auto policy to cover auto liability (for injuries or damage you might cause in an accident) and physical damage to the vehicles. But even if your org doesn’t own cars, you should have “hired and non-owned auto” coverage added to your GL or as a separate policy​. This covers liability if an employee or volunteer uses their personal car (or a rented car) for a nonprofit task and gets in an accident. For example, if a volunteer is driving their own SUV to deliver donated furniture and hits another vehicle, your non-owned auto coverage protects the organization in case the injured party sues the nonprofit. (Their personal auto insurance would likely pay first, but if it’s not enough or denies the claim, your policy kicks in​.) Auto-related claims can be severe, so don’t overlook this coverage if anyone drives on your behalf.

• Property Insurance: If your nonprofit owns or leases any real estate, or even just has valuable equipment, you’ll need property insurance. This covers damage to buildings, office contents, furniture, supplies, etc., usually for perils like fire, theft, vandalism, windstorms, and so on​. For example, if a burst pipe floods your office and ruins computers and files, property insurance pays for repairs and replacements. Tip: If you lease a space, the lease might require you to carry property insurance (or at least insure your improvements and carry liability)​. Note that standard property policies exclude floods and earthquakes, so consider separate coverage for those if you’re in a zone where those disasters loom​.

• Professional Liability (Errors & Omissions): Not every nonprofit needs this, but if your organization provides professional services or advice (e.g. counseling, job training, legal aid, medical clinics), you should have professional liability insurance. It covers negligence claims arising from the services you provide. Even boards can make errors or omissions; one source notes “boards of directors can make mistakes or forget to convey vital information” – professional liability (often called E&O) would cover claims of negligence in those duties​. Basically, if someone says they suffered a loss because your nonprofit failed to perform its professional services properly, this policy responds.

• Cyber Liability Insurance: In today’s digital age, this has quickly become essential for any nonprofit that handles personal data (which is most nonprofits – think donor names, emails, maybe payment info, or client health records in some cases). Cyber insurance helps with the costs of a data breach or cyberattack, including forensic investigations, customer notifications, credit monitoring for affected individuals, public relations, legal defense, and regulatory fines. With cybercrime on the rise and average breach costs reaching record highs (multi-millions of dollars)​, a cyber policy is an important safety net. Even a lost laptop or an email hack could trigger expensive obligations to notify donors of a data leak. If your nonprofit’s data gets compromised, cyber coverage ensures it’s a financial headache, not a total catastrophe.

• Abuse or Molestation Liability: This is critical if your nonprofit works with children, the elderly, or other vulnerable populations. Standard GL or D&O policies may not cover abuse claims without a special endorsement or separate policy. Insurance for sexual misconduct or abuse claims (sometimes called Improper Sexual Conduct coverage​) will cover the organization if there are allegations against a staff member or volunteer. We all hope such incidents never occur, but having coverage (along with strong preventive measures and background checks) is key to protect the organization’s finances and reputation if an accusation arises.

• Employment Practices Liability (EPLI): As mentioned, many D&O policies include this, but if not, consider adding a standalone EPLI policy or endorsement. EPLI covers lawsuits by employees (or even volunteers) claiming things like wrongful termination, failure to promote, harassment, discrimination, or hostile work environment​. Nonprofits are not immune to workplace issues – for example, a former employee might sue saying they were let go unfairly or faced harassment. These cases are sadly common in all sectors, and legal defense alone can be exorbitant. EPLI ensures one lawsuit doesn’t drain your charity’s coffers. Often, you can get EPLI added to D&O for a modest additional premium​, making it an easy inclusion when budgeting for insurance.

• Crime / Fidelity Bond: This coverage protects against theft or fraud, typically if someone internal steals money or assets. It can cover employee or volunteer theft of your funds, securities, or property​. No one likes to imagine a trusted volunteer embezzling from the till, but it has happened (sadly). Crime insurance can also be written to cover theft of a client’s property by your staff (for instance, a caregiver at your nonprofit steals from a client’s home). If your nonprofit handles cash donations, has bank accounts, or any valuable property, a crime policy (fidelity bond) is a wise safeguard. It’s usually not very expensive​. Some funders or grant makers actually require nonprofits to have a fidelity bond, especially if you handle grant money or government funds.

• Umbrella Liability: Think of an umbrella policy as extra liability coverage that sits on top of your other policies. If a claim’s costs exceed the limits of your GL, auto, or other primary liability policy, the umbrella kicks in to cover the additional amount​. This is essential for organizations with higher risk exposure or valuable assets to protect. For instance, if your GL has a $1M limit but you face a $2M lawsuit judgment, an umbrella could cover the gap. For many small nonprofits, a $1M primary limit might be enough, but if you run big events or have significant property, umbrella insurance adds affordable peace of mind (the cost per million in coverage under an umbrella is usually lower than primary insurance)​.

Bottom line: The above coverages form a solid shield around your nonprofit. At minimum, General Liability and D&O are musts for virtually every nonprofit. If you have staff, add Workers’ Comp and EPLI; if you have any kind of property or vehicles, insure those; if you handle sensitive data, strongly consider cyber coverage. Tailor the package to your activities – a good insurance broker can help identify your unique risks and ensure you aren’t missing something important.

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