What are the insurance needs for nonprofit businesses?

Even when the economy is doing well, there are a wide range of activities undertaken by nonprofit or not-for-profit organizations. There are a number of reasons for this. Culturally, the idea of volunteering your time for a good cause has always been strong. People are always prepared to give their time in providing a range of services to those in need. When the economy weakens and a recession tips more people into poverty, the need for volunteerism becomes greater.

Indeed, the more people who need help, the more opportunities there are for nonprofit organizations to give that help. Add to this social incentive the economic fact that there are tax advantages to running nonprofit businesses, and you come to the reality that there are thousands of organisations providing business services of differing types in every major city across the country. They are filling the gap left when the for-profit organizations withdraw from the markets because they cannot make enough profit. In all businesses, the common denominator is the desire to make an operating profit. The difference lies in what you do with the profit. Yet every business has broadly similar insurance needs.

All businesses are regulated by federal and state laws covering employment, working conditions, and so on. Some are to the advantage of nonprofits, e.g. the Federal Volunteer Protection Act of 1997 protects volunteers from liability to third parties so long as they act within the scope of their duties. So if a volunteer negligently injures a member of the public while working for a nonprofit, he or she will not be personally liable. This significantly reduces the insurance premiums. All businesses should carry general third party liability coverage. The recommended amount of cover is $1 million for indemnity and defense costs which is usually sufficient to pay for the damage caused to a third party. But this amount should be increased if the people served by the nonprofit are particularly vulnerable or more likely to sue if something goes wrong. Put simply, a nonprofit can be financially destroyed by the need to defend frivolous claims. Business insurance pays for an attorney to provide that necessary line of defense.

If your business has a commercial lease for premises or rents places for different activities and events, liability insurance is absolutely necessary. If the organization provides transport, whether using the vehicles of volunteers or owned vehicles, there is a positive need for commercial auto insurance. Everyone who drives a vehicle as a part of their duties should be covered by this policy. Put the other way round, most private auto policies exclude coverage when the vehicle is used “for hire”, which excludes the vehicle while being driven for nonprofit purposes. The organization should also insure all the equipment, fixtures and fittings used in the offices and other places where the services are delivered. Employees may claim because their property is damaged or stolen, because they are the victims of harassment or discrimination, etc. The officers and directors of the nonprofits should carefully consider whether they need insurance in their roles. This is particularly important in the small business insurance market. There is less capital available to meet claims and insurance is a necessary part of the survival strategy.

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