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Nonprofit Liability Insurance: How it Works

By Heather Brown
December 02, 2016

The process of finding insurance is overwhelming for many nonprofit directors. Most insurance agents don’t understand their unique needs and treat them like a business. Nonprofits are similar to business organizations but they deserved to be recognized for their unique services and operations. One of the biggest mistakes general insurance agents make is not thoroughly explaining the insurance coverages and benefits. Lack of insight or knowledge on what insurance policies offer and protect nonprofit organizations from leaves individuals thinking it is a worthless investment.

Worth the investment

Insurance is worth the investment even though you don’t see an instant return. Lawsuits are on the rise across the United States and insurance is the only protection that helps nonprofits keep their doors open when they arise. If your nonprofit was sued today for $250,000, what would you do? Many nonprofits are forced to close their doors because they don’t have the means to pay significant claims like these. Liability insurance is one of the many available protection solutions for nonprofits and offers significant benefits in the event of a lawsuit.

  • Pays defense costs. Depending on where you reside, attorneys charge between $50 -$1,000 per hour. Since nonprofits operate on a shoestring budget  these charges are not feasible. Insurance companies pay the costs to defend you nonprofit during a lawsuit for covered claims.
  • Access to experienced attorneys. You don’t have to stress over finding a qualified attorney to represent you. Insurance companies have access to a vast array of experience attorneys and will appoint one to represent you.
  • Pays settlement costs. Settlement payouts depend on the nature of the claim and the success of your defense attorney. Sometimes settlements are as high as $500,000 not a payment most nonprofits can afford. The insurance company pays settlement costs for covered claims.
  • Help manage your reputation. Once a covered claim is filed, insurance companies and your appointed attorney work with you to manage your reputation. The provide guidance and respond to press inquiries on your behalf so you don’t have to worry about saying the wrong thing.
  • Policies and procedures that work. The best insurance companies and agencies provide you with policies and procedures to implement on day one. These policies and procedures help build a stronger environment and minimize potential incidents in your daily operations.

How does it work?

Nonprofit liability insurance is purchased initially for a one-year term and then renewed on the expiration date the following year. It is vital you report any incident that arises that may result in a claim. It is even more important that you notify the company if you receive any correspondence from an attorney. Once you file the claim, they assign you with a claim number, adjuster, and lawyer to communicate with.

Where to find insurance

The key to purchasing insurance suited for your nonprofit is finding an agent that fully understands nonprofit organizations. Contact your existing agent to see if they utilize companies that offer specialty nonprofit insurance policies. If they don’t, ask them if they are familiar with an agency that does. You can also search online to find a nonprofit insurance agency that works exclusively with nonprofits like yours.

Nonprofit liability insurance holds significant value for your organization in the event of a lawsuit. Don’t avoid because it seems overwhelming. Find an agent that understands you and your services to make the process more enjoyable and easy to understand.

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