Debunking Common Nonprofit Insurance Myths (2025 Update) Part 3

Coverage That Might Be Unnecessary or Situational

Just as important as knowing what you do need is knowing what you might not need. Some insurance policies sound useful but only apply in specific situations. Nonprofits must be mindful of their budget, so it doesn’t make sense to buy coverage for risks you truly don’t have. Here are a few types of policies or add-ons that could be unnecessary for your nonprofit, or only necessary under certain conditions:

• Property Insurance (if you have no property): If your nonprofit doesn’t own a building or expensive equipment, you may not need a full property policy. For example, a small advocacy nonprofit working virtually or out of a coffee shop has minimal assets instead of an annual property policy, they might just rely on basic property coverage included in a Business Owners Policy or even none at all. However, be cautious: even if you don’t own real estate, you probably have some property (computers, office supplies, etc.) that could be protected. Many small orgs bundle property and GL together in a package. But if you truly have no physical assets to insure, a standalone property policy could be unnecessary.

• Commercial Auto Insurance (if no organizational vehicles): As discussed, hired/non-owned auto coverage is wise if anyone drives for the nonprofit. But you don’t need a full commercial auto policy unless your nonprofit owns or regularly leases vehicles. If you have no owned autos, you might be able to skip the costly auto insurance policy and add non-owned auto coverage as an endorsement to your GL (often much cheaper, with minimum premiums a few hundred dollars​). Similarly, if a nonprofit owns one vehicle but it’s rarely used, you might weigh the cost-benefit of keeping it versus renting when needed. Don’t pay for fleet insurance if you have no fleet.

• Volunteer Accident Insurance (if you have no or low-risk volunteers): This coverage is relatively inexpensive​and very useful if volunteers do physical work or your volunteer base is large. But if your nonprofit currently has no volunteers (or maybe just your board members who are already covered by D&O) and no plans to use any, a volunteer accident policy might be unnecessary. Likewise, if volunteers perform extremely low-risk activities (e.g. they only do remote phone calls), you might deem it non-essential. Keep in mind, though, volunteer accident insurance is often so affordable that many nonprofits opt for it anyway as a goodwill gesture. Evaluate your volunteer exposure: if it’s truly negligible, you can forgo this; if it could grow or if volunteers face any risk, it’s worth adding.

• Special Event Insurance: Nonprofits often host events like galas, 5K runs, or festivals. If events are a big part of your operations, you may need special event insurance or liquor liability coverage case-by-case. But if you never hold events open to the public (or only very small gatherings covered by your GL), you don’t need to purchase event insurance regularly. This is a situational coverage, so get it when you plan a large event, especially if alcohol is served or if a venue requires you to carry it. Don’t pay for it year-round if you only have a one-off annual fundraiser (just get a rider for that day).

• Flood or Earthquake Insurance (if not applicable): These are perils not covered by standard property insurance. If your nonprofit is in a flood zone or quake-prone region (say, a California-based theater troupe or a Houston food bank), then yes, consider these policies. But if you’re in Michigan, paying for earthquake insurance probably isn’t a priority. Similarly, if you operate from a second-floor office in a city center, the flood risk might be so low that you can reasonably skip flood insurance. Always evaluate your geography and don’t buy coverage for disasters that realistically won’t affect you. (However, climate patterns do shift, so keep reevaluating over the years.)

• Product Liability Insurance: This covers liability from selling or manufacturing products. Few nonprofits need this, unless you, say, operate a gift shop or sell handmade goods as part of your mission. If all you “sell” are ideas and services, you can ignore standalone product liability coverage (your GL covers basic liability anyway). On the other hand, if you start a social enterprise selling food items or crafts, then you’d want to add it.

• Key Person Life Insurance: Some nonprofits consider insuring their founder or a key executive, so that if that person dies or becomes disabled, the organization gets funds to stay afloat or find a replacement. This is optional and situational. If your nonprofit is heavily dependent on one individual’s relationships (like a superstar fundraiser or an artistic director), a key person policy might be worth it. But many small nonprofits can skip this, because while a leader’s loss would hurt, the cost of insuring them might be better spent on general operations. It’s a nice-to-have for succession planning, not an absolute necessity for most.

• Umbrella/Excess Liability (for very small, low-risk orgs): While umbrella coverage is great for extending your limits, a very small nonprofit with minimal exposure might not need to pay for an umbrella policy. If you already have $1M or $2M limits on GL and D&O and you don’t do high-risk activities, you might reasonably decide an umbrella is overkill. However, note that umbrella policies can be quite affordable per extra $1M of coverage​. So even if it’s not strictly necessary, some nonprofits opt for an umbrella simply for peace of mind (especially in our litigious climate). It’s situational: assess the likelihood of a catastrophic claim versus the cost of extra coverage.

In short, tailor your insurance to your operations. If a coverage addresses a risk you truly don’t have, skip it. But be careful – consult with an insurance expert who understands nonprofits, because it’s easy to underestimate a risk. (You don’t want to find out after a loss that you actually did need that policy you passed on!) The goal is to have a Goldilocks insurance program: not too little, not too much, just right.

Real-World Examples: Why the Right Coverage Matters

It’s all a bit abstract until something happens. Let’s look at a few real (and eye-opening) examples that illustrate why having the right insurance (and not wasting money on the wrong kind) is so important:

• Employment Lawsuit Nightmare: A small health nonprofit thought lawsuits only happened to bigger organizations until a former employee sued for age discrimination and wrongful termination. The case settled for $105,000, and the nonprofit racked up $28,000 in legal defense costs​. Without D&O/EPLI coverage, that $133k would have directly hit the nonprofit’s budget, potentially wiping out their reserves. Because they did have the right insurance, the policy paid most of the settlement and legal fees, saving the organization from financial ruin. Employment-related suits (whether over discrimination, harassment, or wage issues) are one of the most common claims nonprofits face, reinforcing why D&O with EPLI isn’t just for the Fortune 500 charities.

• Board Blunders and Personal Liability: In one case, a nonprofit’s board approved spending of grant funds in a way the funder said was improper. A government audit led to a lawsuit alleging misuse of funds and false claims. The nonprofit had to pay a settlement of $400,000 and incurred $250,000 in defense costs​. If they lacked D&O insurance, not only would the nonprofit be on the hook, but board members could have been personally sued for breach of duty. D&O coverage shielded the board members’ personal assets and covered those hefty legal bills. This example shows even well-meaning boards can make decisions that lead to legal trouble, and insurance is the safety net for when governance goes awry.

Each of these scenarios underscores a key point: having the right coverage in place before an incident is critical. You can’t buy insurance for a house that’s already on fire, and you can’t retroactively insure against a lawsuit that was filed yesterday. Nonprofits operate on thin margins as it is; one uninsured claim can drain years of hard-earned funds or even shut down an organization. Conversely, having appropriate insurance means that when Murphy’s Law strikes, your mission can continue with minimal interruption.

Time to Evaluate Your Coverage

After busting myths and sifting through what’s essential versus optional, it’s clear that every nonprofit should periodically take stock of their insurance coverage. When was the last time you reviewed your policies? As we kick off 2025, it’s a perfect opportunity to ensure your insurance aligns with your current activities and exposures. Nonprofits evolve. You might offer new programs, work with more volunteers, or have invested in a suite of laptops for remote staff. Your insurance should evolve too.

Action step: Schedule an annual insurance check-up. Involve your board or finance committee and reach out to an insurance professional who understands nonprofits. (If you don’t have a broker, consider contacting a nonprofit insurance specialist or an insurance alliance that works with 501(c)(3) organizations.) They can help identify gaps or unnecessary coverages. For example, you might discover that you’re paying for an inland marine rider you never use, but you haven’t included cyber liability which you urgently need. A review can bring your coverage in line with your actual risk profile, often saving money and headaches.

Remember, the goal is optimally protecting your mission. As one nonprofit insurance expert put it, dispelling myths and getting the right coverage “not only safeguards your mission but also supports the continued service and impact you provide to your community”​. When you have confidence that you’re properly insured, you can focus on what you do best: making a difference.

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