Certainty in Uncertain Times
A Nonprofit’s Guide to Risk Management and Small Business Insurance

Chapter 2: Understanding Nonprofit Insurance Coverages
Part 1: The Building Blocks of Your Nonprofit Insurance Plan

General Liability Insurance for Non-Profit Organizations

For many nonprofits, General Liability Insurance (GL) is the foundation of their insurance coverage. This policy covers some of the third-party claims all businesses may face, such as injuries that happen on your premises, property damage liability, and advertising injury lawsuits.

For example, here are a few situations that would trigger your coverage:

  • Premises liability. A FedEx deliveryman slips on the icy sidewalk outside your building while delivering a package to your NPO. He sues your business for medical expenses.
  • Property damage. You rent a ballroom to host a charity dinner event. The building owner sues you after the event, claiming one of your guests damaged a bathroom sink.
  • Advertising / personal injury. A musician files a lawsuit against your NPO, alleging the video on your website uses his copyrighted material without his consent.

For each of these claims, your GL policy can cover your legal expenses, so long as the lawsuit is brought by a third party (i.e., someone who doesn’t work for your NPO). And these costs add up quickly when you consider lawyer’s fees, evidence, expert witnesses, docket costs, and damages (if you lose the case).

Damages (or “judgments”) can run anywhere from a few thousand to a few million dollars. You may also choose to settle a lawsuit out of court, which would involve both parties’ lawyers agreeing on how much you are going to pay the person suing you (i.e., the plaintiff). Luckily, your General Liability Insurance can pay for all these expenses —judgments, settlements, lawyer’s fees, and court costs.

You can also add Cyber Liability Insurance to your GL policy so you’ll have funds to handle the aftermath of a data breach. For example, if someone hacks into your network and steals your donors’ financial information, the policy pays for credit-monitoring services, the cost of notifying affected parties about the breach, and advertising to restore your NPO’s credibility.

Property Insurance Helps NPOs Survive Storms, Fires, and Other Damage

Your NPO relies on a slew of property and equipment so it can help others. Property Insurance is designed to help your social service organization protect its assets from unpredictable disasters. It steps in when your organization loses its property because of…

  • Theft and vandalism.
  • Fire damage.
  • Windstorms.
  • Power surges and outages.

When one of these covered claims occurs, your insurance company reimburses you for the cost to replace, repair, or restore your property. You may even be required to carry Property coverage, depending on the terms of your commercial lease agreement. Even if your landlord insures the real estate, you’d still need to protect the building’s contents with your own policy.

Check your lease — you may be required to carry your own Property Insurance.

If you own commercial real estate, you have all the more incentive to safeguard your investment. Your Property policy can cover your building and the equipment inside it, including…

  • Offices / garages / workplaces.
  • Computer and office equipment.
  • Inventory, supplies, and other professional materials.

For example, say you run an after-school athletic camp for middle school kids. You keep an arsenal of sports equipment and other supplies in a garage. If the garage were to burn down, Property Insurance could compensate you for the cost to replace your damaged equipment and repair your storage space.

If you run a home-based NPO, you may be wondering, but what about Homeowner’s or Renter’s Insurance? In short, most of these policies don’t cover commercial equipment unless you have the appropriate riders attached to your policy. Even then, you’ll get more coverage with a commercial Property policy. (To learn more about the gaps in your Homeowner’s policy, check out our infographic “Is Your Home-Based Business Covered? New browser window icon.”)

Home-based NPOs: your Homeowner’s Insurance might not cover your equipment, office supplies, and other commercial property.

Bundle Insurance and Save: Business Owner’s Policies for Nonprofits

Every business is budget-conscious, but non-profits have to be even more careful with their funds. Many nonprofit managers try to find ways to minimize overhead while maximizing their services and fundraising capabilities. That’s why you might be interested in a Business Owner’s Policy (or BOP).

Business Owner’s Policies package General Liability Insurance and Property Insurance into one plan at a discounted rate. You receive the same coverage, but for less than you’d pay if you purchased these two policies individually.

However, BOPs aren’t available to everyone. Eligibility guidelines vary from one insurance provider to another. Generally, your nonprofit may qualify if it…

  • Has an office space or workplace with relatively small square footage.
  • Has fewer than 100 employees or less than $5 million in revenue.
  • Doesn’t work in a hazardous or high-risk industry.
  • Requires no more than 12 months of Business Interruption Insurance.

Business Interruption Insurance is usually part of your Property Insurance plan. If a covered property loss forces your NPO to halt operations, Business Interruption coverage can…

  • Pay for your organization to move to a temporary office.
  • Insure your income.

If you can’t make any money because your organization is still reeling from the aftermath of a fire or windstorm, Business Interruption Insurance can cover your normal income, helping you pay salaries, leases, and other costs.

Do Non-Profits and Social Service Organizations Need Workers’ Compensation Insurance?

If your organization doesn’t have any employees, you probably won’t have to purchase Workers’ Compensation Insurance (sometimes also called Workers’ Comp or Workman’s Comp).

Workers’ Comp is a policy that every state in the country (except Texas) requires employers to carry. (Read about your state’s laws in our guide “Workers’ Compensation Insurance Laws by the State New browser window icon..”) As soon as you hire employees, you’ll probably need to purchase the policy.

Nearly every state in the U.S. requires employers to carry Workers’ Compensation Insurance.

Workers’ Compensation Insurance for nonprofits offers coverage for…

  • Employees’ medical expenses for work injuries or accidents.
  • Employees’ foregone wages during their recovery.
  • The cost of hiring a temporary employee to fill in while an injured worker recovers.
  • Legal expenses if an occupational injury leads to a lawsuit.

For example, say you run a nonprofit healthcare center, and a nurse slips on a wet floor. She lands hard on her back and breaks her elbow. Workers’ Compensation Insurance can cover her medical care, surgeries, and pay her wages while she recovers. It might even pay the clinic to hire a replacement nurse to take over her shifts.

Now imagine that nurse decides the clinic was at fault for her injury. She sues, claiming your clinic should have repaired the leak responsible for the slick floor. The clinic could face tens of thousands of dollars in legal fees: lawyer’s bills, court fees, and settlements or judgments. Luckily, Workers’ Comp can cover these costs, too.

Once you hire employees, be sure to carry the appropriate amount of insurance to comply with your state’s Workers’ Comp laws. You can even save some money on your policy by you excluding yourself from coverage.

Next: Part 2: How Nonprofit Liability Insurance Accounts for Your Most Pressing Risks

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