Organizational Structure



Amy Kriz, CPA

American Petroleum Institute (API)

Nonprofit organizations, like any other entities, face a range of risks and challenges in their day-to-day operations. To protect their missions, assets, and people, nonprofit leaders must be well-versed in various insurance options available to them. We'll explore the key types of insurance coverage essential for nonprofit organizations, including Directors and Officers (D&O) insurance, Liability insurance, Cyber insurance, property insurance, and workers compensation insurance.

Directors and Officers (D&O) insurance is a fundamental coverage for nonprofit organizations, as it protects the individuals who serve on the board and in executive roles. D&O insurance shields these key figures from personal financial liability in case they are sued for alleged wrongful acts, such as mismanagement, financial misdeeds, or breaches of fiduciary duty.

General Liability and Professional Liability insurance, also known as Errors and Omissions (E&O) insurance, are vital for nonprofit organizations. General Liability coverage protects against claims arising from bodily injury or property damage on the organization's premises, while E&O insurance covers claims related to professional mistakes, such as errors in services provided.

Nonprofits should assess their specific needs, considering the nature of their operations, services, and potential liabilities. Having the right Liability insurance safeguards against legal costs and financial damages in the event of lawsuits or claims.

Cyber insurance is a relatively new but critical form of coverage for nonprofit organizations. This type of insurance helps protect against losses stemming from data breaches, cyberattacks, and other online risks. It can cover costs such as notification of affected parties, legal fees, and the costs of data recovery and system restoration.

Nonprofits should assess the sensitivity and volume of the data they handle, including donor information, and invest in Cyber insurance accordingly. Being prepared for cyber risks is not just prudent; it's necessary to maintain trust and data security.

Property Insurance coverage protects against damage or loss to physical assets, such as buildings, equipment, and inventory. It's especially crucial if your organization's mission relies on specific equipment or facilities.

Workers' Compensation insurance is essential for nonprofit organizations with employees. It provides coverage for medical expenses and lost wages in the event of a work-related injury or illness. Complying with state requirements for workers' compensation is not just a legal necessity but also a moral responsibility toward your employees.

Reviewing your insurance policies:
Reviewing insurance policies is a critical responsibility for nonprofit organizations to ensure they have adequate coverage and protection. When conducting this review, nonprofits should consider the following key items:

  • Policy Coverage Limits: Ensure that the coverage limits align with the organization’s needs and potential liabilities.
  • Policy Exclusions: Carefully review the policy for any exclusions or specific circumstances that are not covered. Understanding these exclusions helps nonprofits assess their potential vulnerabilities.
  • Deductibles: Be aware of any deductibles that the organization is responsible for in the event of a claim. Consider whether these amounts are manageable within the organization’s budget. 
  • Policy Premiums: Evaluate the cost of the insurance premiums and confirm that they are within the budget constraints. It may be worthwhile to shop around for competitive rates.
  • Policy Renewal Dates: Keep track of the policy’s renewal date and ensure that coverage does not lapse.

Each organization should carefully assess its specific insurance needs, consult with insurance professionals, and create a comprehensive insurance strategy that ensures the organization's stability and resilience in the face of unexpected challenges. Remember, insurance is not just about risk mitigation; it's a key element in safeguarding the invaluable work nonprofits do for their communities and causes.