How much insurance does your nonprofit need to mitigate risk?

A warning if your not-for-profit organization is looking for expenses to cut: Don’t skimp on insurance. Should your nonprofit experience a fire, major theft or other calamity, you’ll be glad you have the coverage. Of course, you may also be required by your state, certain funders, lenders and your own bylaws to carry adequate insurance. Donors certainly expect you to protect their investment in your nonprofit by managing risk with insurance. But to ensure you’re not wasting money, consider what you need — and what you might not.

General liability is critical

Many kinds of insurance coverage are available, but it’s unlikely your organization needs all of them. One type you do need is a general liability policy for accidents and injuries suffered on your property by clients, volunteers, suppliers, visitors and anyone other than employees. Your state also likely mandates unemployment insurance as well as workers’ compensation coverage. Property insurance that covers theft and damage to your buildings, furniture, fixtures, supplies and other physical assets is essential, too. When buying a property insurance policy, make sure it covers the replacement cost of assets, rather than their current market value (which is likely to be much lower). Depending on your nonprofit’s operations and assets, consider such optional policies as automobile, product liability, fraud/employee dishonesty, business interruption, umbrella coverage, and directors’ and officers’ liability. Insurance also is available to cover risks associated with special events. Before purchasing a separate policy, however, check whether your nonprofit’s general liability insurance extends to special events.

Setting priorities

Because you’re likely to be working with a limited budget, prioritize the risks that pose the greatest threats. Then discuss with your financial and insurance advisors the kinds — and amounts — of coverage that will mitigate those risks. Be careful you don’t assume insurance alone will address your nonprofit’s exposure. Your objective should be to never actually need insurance benefits. To that end, put in place internal controls and other risk-avoidance policies such as new employee orientations and ongoing training.

It’s about responsibility

Your nonprofit is responsible for securing the safety of its physical assets, your employees and (in many cases) individuals who participate in your programs. Contact us to discuss how insurance can fit into your larger risk management plan.

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