Nonprofit organizations face many of the same risks as their for-profit counterparts. To protect against potential threats, nonprofits require comprehensive insurance coverage. Although no two organizations are exactly the same, there are several types of insurance policies that all nonprofits should consider to protect their board members, employees, volunteers and customers as well as the business as a whole.
Many nonprofit organizations operate on a tight budget, meaning just one large and unforeseen expense could result in financial ruin. Business insurance, health insurance, employee benefits and other types of policies are designed to cover critical aspects of an operation, including its physical assets, managers and directors. Carefully analyze the needs of the nonprofit and the possible risks in order to confirm what policies are necessary.
Nonprofit organizations rely heavily on their employees, volunteers and assets to fulfill their mission. Consider what types of insurance are best suited to protect these people and property. Each policy plays an important role in enhancing employee compensation packages and guarding nonprofits against unexpected events that could affect the future of the business.
Here is a look at some of the most common types of insurance policies that every nonprofit should consider:
Business Insurance Policies Nonprofits Need
Nonprofits are often confined to a small budget and must find ways to efficiently allocate funds. One area where no organization should cut corners is business insurance. Similar to for-profit businesses, nonprofit organizations face common risks of theft, personal injuries, vandalism and cybercrimes. Without adequate insurance, the organization may be responsible for any financial damages incurred.
The type and amount of insurance coverage a nonprofit requires is dependent on the industry and level of risk. However, there are also some essential policies that all nonprofits should acquire, such as a basic liability policy. According to Blue Avocado magazine, up to 90 percent of claims filed by nonprofits are related to injuries as a result of falling accidents on the business premises.
When shopping for business insurance, nonprofit organizations should consider the following policy types:
General liability insurance is a common component of a business owner’s policy (BOP) and covers claims that may arise during normal business operations. A general liability insurance policy may cover claims related to the nonprofit organization, such as:
- Third-Party Bodily Injury — If a customer suffers a slip and fall accident, they could sue the business. General liability policies include bodily injury liability and can help cover the medical bills and lost wages expenses.
- Third-Party Property Damage – If volunteers or employees of a nonprofit perform work at a customer’s home, property damage could ensue. Property damage liability coverage may cover the cost of repairs or replacements to a third party’s belongings.
- Advertising Injury – Nonprofit organizations are at risk for lawsuits relating to copyright infringement. Advertising injury coverage can protect against these types of risks.
- Reputational Harm – A disgruntled client or customer could sue the organization for libel or slander. If this occurs, general liability insurance can help cover the legal costs of defending the business.
Commercial property insurance protects a nonprofit’s physical assets from theft, vandalism, storms, burst pipes, explosions and fire. Some perils, such as floods and earthquakes, are generally not covered under standard property insurance. However, they can be added to a policy for an additional cost.
Everything inside and just outside of the building, as well as the building itself, is covered by commercial property insurance. This includes furniture, equipment, computers, inventory, exterior signs, fencing, landscaping, important documents and the property of others.
The cost of a commercial property insurance policy is based on a number of factors, such as the location. Areas that are prone to natural disasters or strong storms may have higher premiums. The building’s construction and whether or not it is made with fireproof materials and has updated HVAC can also play a role in insurance pricing.
Employees can become injured on the job at any time. Workers’ compensation insurance, also referred to as workers’ comp, can provide employees with the benefits they need if they should experience a work-related injury or illness. Workers’ comp can protect a business and its employees by helping with:
- Medical Expenses – Workers’ compensation covers medical expenses accumulated from diagnosing and treating an ill or injured employee.
- Missed Wages – If the ill or injured employee requires time off from work until they recover, workers’ comp may cover missed wages.
- Vocational Rehabilitation – Workers’ comp typically covers employees who require ongoing care to help them return to work.
- Death Benefits – A workers’ comp policy will generally cover death benefits, such as funeral expenses, if an employee should pass away from a work-related injury or illness.
Each state has its own workers’ compensation program and these regulations can differ from area to area. Individual states also dictate who sells and handles these policies, such as the state itself, state-run agencies or private insurance companies.
Commercial auto insurance covers the cost of vehicle accidents that involve business-owned vehicles. Many policies also cover vehicle-related vandalism, theft and other types of vehicle damage. There are three main components of an auto insurance policy, including physical damage insurance that includes collision, liability insurance that includes bodily injury, property damage, uninsured motorist and underinsured motorist coverage and other coverages such as lease gap coverage and rental reimbursement.
Nonprofits can also choose to extend their basic coverage by purchasing add-ons. Optional roadside assistance can protect businesses against common incidents, such as flat tires, dead batteries or being locked out of the car. Other add-ons including new vehicle replacement cost coverage can be useful when nonprofits want the option of having their business vehicle replaced with a new or comparable vehicle if there is an accident that causes a total loss.
Directors and Officers Liability
Directors and officers (D&O) liability insurance is a type of coverage designed to protect directors and officers from personal losses if they are sued while working for an organization. D&O insurance may also cover any legal fees that accumulate as a result of a lawsuit.
Insurance claims are paid directly to directors and officers of an organization for losses incurred or reimbursement of defense costs if legal action has been brought against them. Although D&O insurance is not required by law, it should be seriously considered. According to a study published by Chubb, more than 25 percent of private businesses reported a D&O-related loss over the course of three years.
The cost of directors and officers liability insurance is based on a wide range of factors, such as the company size, financial position, industry, level of risk, claims history and revenue. Nonprofits that have a longer operating history are likely to pay less for D&O insurance compared to younger nonprofits.
Professional liability insurance (PLI) protects professionals against negligence and similar claims from their clients. Most general liability insurance policies do not offer protection for professionals in specific areas, making professional liability coverage a must-have for these industry experts. Standard professional liability policies protect against malpractice, negligence and misrepresentation.
Professional liability insurance policies are generally written by insurance companies on a claims-made basis and include an extended reporting period and retroactive date. The extended reporting period covers claims that are filed within a certain time period after the policy has expired which is usually 30 to 60 days. The retroactive date covers incidents that occur on or after a specific date on the policy.
Nonprofit organizations should consider a professional liability policy if they regularly give advice to clients, offer professional services directly to customers or are required to sign a contract that dictates that coverage is needed.
Cyber Liability Insurance
Data breaches and other types of cybercrimes are becoming more common with the rapid advancement of technology; unfortunately, many organizations are not fully protected against cyber risks. According to NTEN, only 26 percent of nonprofits actively monitor their network environment for cybersecurity threats and approximately one-third of nonprofits have implemented passive monitoring.
Cyber liability insurance covers an organization’s liability for cybercrimes that involve sensitive customer information, such as credit card numbers, Social Security numbers, driver’s license numbers, account numbers and health records.
In addition to covering legal fees and defense expenses, cyber liability insurance policies may cover the cost of recovering compromised data, restoring the personal identities of affected customers, repairing damaged computer systems and notifying customers when data breaches occur.
Any nonprofit that collects or stores customer information or works in an industry that regulates customer information, such as education, healthcare or finance, should consider a cyber liability insurance policy.
Health Insurance Policy Requirements
Nonprofits are not required to provide health insurance to employees. However, there is a provision under the Affordable Care Act (ACA) that states employers with more than 50 full-time employees must provide health insurance or risk a penalty. Despite this risk, many nonprofits fail to offer health insurance to their workforce. According to a PeopleKeep survey of owners of nonprofits, 81 percent reported that cost was one of the biggest obstacles in finding a policy that fits their needs.
There are many reasons why nonprofits should consider offering health insurance to their employees. Health insurance demonstrates that the organization is invested in its employees and their health. It can also be useful in the recruitment and retaining of top talent. Businesses that want to remain competitive need to offer an attractive benefits package that includes highly-sought-after benefits including health insurance.
To keep health insurance costs low, nonprofit organizations should consider one of the following employee health insurance options:
High-Deductible Health Plan (HDHP)
A high-deductible health plan (HDHP) is a type of health plan that has a higher deductible than a traditional health insurance plan. In exchange for a higher deductible, the monthly premiums are kept fairly low. HDHPs are often used in conjunction with health savings accounts (HSAs) to allow plan participants to pay for certain medical expenses with tax-free money.
With an HDHP, the health plan starts to pay for eligible medical expenses once the deductible has been met. The amount paid for the deductible can vary based on the unique plan. There are several benefits to choosing this type of health plan, including ample coverage. Preventive care is typically covered at 100 percent under most plans when the participant remains in-network. Although lower premiums can help save money in the long term, HDHPs can result in costly out-of-pocket medical expenses.
Health Reimbursement Arrangement (HRA)
Health reimbursement arrangements (HRAs) are employer-funded and refer to group medical plans in which employees receive tax-free reimbursements for qualified health expenses up to a specified dollar amount annually. Any unused amount in the account can be rolled over to the next year. Employers own the HRAs and are allowed to claim tax deductions for any reimbursements that they make through these plans.
HRAs are funded by employers, not employees. Unlike some other types of health insurance, they are not portable meaning that an employee loses this benefit when they leave the organization. Once set up by an employer, the employer decides how much to put in the plan and employees can request reimbursement for any medical expenses that they incur up to the fixed amount.
While a health reimbursement arrangement is sometimes referred to as a health reimbursement account, it is not actually an account. Employees cannot withdraw funds prematurely to pay for health costs. Instead, they must incur the expense and request reimbursement from their employer. Some employers provide an HRA debit card to make reimbursement possible at the time of service.
Health Insurance Co-op
A health insurance co-op (cooperative) is another option for nonprofits looking for a way to help their employees gain access to the medical services they need without exceeding their budget. Health insurance co-ops are a type of health payment structure that provides health insurance at a reduced cost. The biggest advantage of health insurance co-ops is that there is ample negotiating room with insurance providers.
Co-ops are “member-owned,” meaning they are owned by the people that have insurance with them. The co-op typically consists of thousands of members which means the cost of the insurance is spread out amongst a large group. Health insurance co-ops are not reliant on profits and therefore not inflated by administrative costs. Co-ops also only collect what is spent which keeps costs low due to the absence of tax liability.
Employee Benefits Nonprofits Should Offer
Many nonprofits struggle to build a comprehensive employee benefits plan that includes highly sought-after fringe benefits; however, the advantages of offering a quality benefits package are numerous. Fringe benefits demonstrate to employees that they are valued and that the business is dedicated to keeping them happy and healthy. An employee benefits package can also be used as a recruitment tool to attract and retain top talent. The right combination of benefits can help a business to stand out from competitors.
Insurance policies are a common component of any solid employee benefits package. There are many types of insurance that a nonprofit organization should consider adding to their fringe benefits offerings, such as life insurance, disability insurance, dental insurance and vision insurance.
Here is a closer look at some of these leading insurance policies commonly offered as fringe benefits by nonprofits:
A nonprofit organization may offer group life insurance as part of its employee benefits package. Group life insurance is a form of life insurance that consists of a single contract that covers a group of people. In most cases, an employer assumes the role of policy owner and employees can opt to become plan participants. The cost of group life insurance is typically lower, compared to personal policies, as the risk is spread amongst a large group.
Term life insurance is the most common form of group life insurance. This type of life insurance is usually offered as yearly renewable term insurance. The employer usually pays for most or all of the premiums and the amount of coverage available to plan participants is often equal to one or two times their annual salary. An organization may choose to require employees to have been employed for a certain amount of time before they are granted coverage.
Nonprofit organizations that have 10 or more employees may consider adding group disability insurance to their employee benefits package. Disability insurance provides eligible employees, who have become completely disabled, with a benefit of up to 60 percent of their pre-disability income up to a specified amount per month. These funds can be used to cover personal expenses while the disabled person is out of work.
Group disability insurance is highly flexible. Employers can choose a plan design that fits their unique needs and budget. Group rates are also lower than individual rates and employees may have the option to take their coverage with them when they leave the organization.
How premiums are paid can also differ based on the business’s preferences. Premiums can be paid by the employer, the employee or by both parties using after-tax or pre-tax dollars. Adding group disability insurance to an employee benefits package can be an excellent recruitment tool and can help nonprofits draw in and retain talented workers.
Many standard group health insurance policies do not cover dental services. However, nonprofits can choose to include dental coverage as an add-on to their existing healthcare policy or as a standalone policy. Dental insurance policies can range from basic coverage to more extensive service options.
Standard dental insurance policies typically cover preventive care, such as exams, cleanings and x-rays. A policy may cover all or a portion of basic dental procedures, such as dental fillings. Comprehensive dental policies cover major procedures, such as dentures and crowns. Few policies cover cosmetic treatments, such as teeth whitening or orthodontics.
When selecting a dental plan for a nonprofit, it is important to consider what plan will provide the best coverage for the organization’s budget. Dental policies generally consist of several components, including premiums, deductibles, copays, coinsurance and annual maximums.
Similar to dental insurance, vision insurance can be added to an existing health insurance policy or purchased separately. Most vision insurance policies cover the cost of an annual eye exam and prescription eyeglasses. Today, many policies also cover the expense of contact lenses. However, coverage is dependent on the type of vision insurance policy.
There are two main types of vision benefits that nonprofit organizations should consider for their employees. A typical vision insurance plan will cover basic eye care services and eyewear within a fixed dollar amount. The plan participant may need to pay a small co-pay each time they access the service.
Nonprofits may also choose to offer a discount vision plan. A discount vision plan provides plan participants with both eye care services and eyewear at a discounted rate after paying the annual premium. Each type of vision plan can be customized to meet the unique needs of the business. Some policies may even partially cover more costly vision procedures, such as LASIK and PRK.
What To Know When Shopping For Nonprofit Insurance
When shopping for insurance for a nonprofit organization, there are many aspects to consider. First, assess the needs of the organization and gain insight from employees. Determine how many employees would be interested in insurance, who will be eligible for coverage and the type of plan that employees prefer (e.g., low premiums with high deductibles vs. high premiums with low deductibles).
Nonprofits must also ensure that they remain in compliance when offering employees benefits. While the ACA does not require nonprofit employers to offer health coverage, those with 50 or more full-time equivalent (FTE) workers may face a penalty if they fail to offer medical insurance. FTE refers to employees that work at least 30 hours per week or a minimum of 130 hours per month.
Smaller nonprofits with tight budgets can benefit from having 50 or fewer FTEs. These employers have the option of purchasing employee health insurance through the Small Business Health Options Program (SHOP) as part of a larger group. This option enables nonprofits to take advantage of attractive pricing on policies that were previously only available to larger companies.
Nonprofits should also consider what insurance they may be legally required to obtain. For example, before they can rent a commercial space, a nonprofit may be required to purchase a general liability insurance policy to cover potential third-party lawsuits over claims of property damage or bodily injury. Some mortgage lenders may also have this type of requirement.
Also, take the time to analyze the unique risks of the industry; every industry is unique in the level of risk it faces during normal operations. Consider the risk of a customer or employee becoming injured or a client suing the organization. If the nonprofit faces a higher level of risk than normal, a more comprehensive policy may be needed to protect the business and its assets.
There are many factors influencing the cost of business insurance which can make it difficult for nonprofits to acquire the necessary protection. Learn which of these factors could potentially affect the nonprofit and how to guard against these threats.
Start by creating a safe work environment that lowers the risk of employee injuries or illnesses. Avoid allowing employees with poor driving records to operate business vehicles. Install security alarms and fire suppression systems which can help reduce property insurance costs. Do not allow any business insurance policies to lapse as a break in coverage can cause premiums to increase.
Frequently Asked Questions (FAQs)
Regardless of a business’s size, industry or extent of their operations, every organization requires the right combination of insurance policies to protect against liability and loss. However, choosing insurance for a nonprofit can be challenging. Here are some of the most frequently asked questions about insurance for nonprofit organizations.
Why do nonprofits need insurance?
No company is exempt from business risks, including not-for-profit organizations. The right insurance can protect an organization from liability and property damage claims. Business insurance can help minimize financial losses and increase the credibility of the organization.
When insurance is available to cover these expenses, lawsuits that do occur are less likely to leave the business in financial ruin. Insurance is also an important aspect of employee benefits. Businesses are more likely to attract top talent and retain a loyal workforce when they offer an employee benefits package that includes, at a minimum, life insurance, disability insurance and health insurance.
How do nonprofits know what insurance they need?
There are many factors that go into purchasing insurance for a nonprofit organization. To determine an organization’s insurance needs, take the time to assess possible risks. Consider the types of natural disasters, accidents or lawsuits that could damage the business.
It is not enough to just assess the business once, but also on a regular basis; as the business grows, so do the potential liabilities. If an organization has recently expanded its operations, purchased new equipment or performed another action that could pose a risk, consider how that change could impact the existing coverage. Speak with an insurance broker to determine if the nonprofit is sufficiently protected.
Who needs nonprofit insurance?
Many types of nonprofit organizations can benefit from acquiring insurance for the business itself and its employees. The biggest difference between nonprofit organizations and other businesses is that nonprofits do not turn a profit. These businesses have been deemed tax-exempt by the Internal Revenue Service (IRS) and require unique coverage.
Some types of nonprofit organizations that may want to consider acquiring insurance include charitable organizations, social welfare groups, labor unions, public safety testing organizations, agriculture unions, scientific organizations, federal credit unions, amateur sports associations, religious organizations, rotary clubs, politically motivated groups, volunteer fire stations and recreational and social clubs.
How do insurance needs differ between for-profits and nonprofits?
There is often some confusion as to how insurance needs differ between for-profit companies and nonprofit organizations. Nonprofits require many of the same policies as for-profits, such as general liability insurance, property insurance, auto insurance, D&O insurance and professional liability insurance.
Similarly to for-profit businesses, nonprofits must protect their interests, which include their assets and workforce. Despite popular belief, nonprofit organizations can be sued and face many of the same risks as for-profit companies. For this reason, it is essential to acquire ample coverage to protect the organization and its staff.
How long does it take to get a quote?
Insurance policies can range in cost depending on the insurance company, terms of the policy, size of the organization, level of coverage and many other aspects. It is a good idea to request several quotes to determine if the nonprofit is getting the best value for its money. The organization will likely need to complete an application provided by an insurance broker before a quote can be calculated. Once enough information has been collected, a quote can usually be provided within a couple of days of submission. Larger nonprofits may require additional time to get a quote.
Does a nonprofit need an insurance broker?
Many nonprofits prefer the assistance of an insurance broker to help them navigate through their insurance options. An insurance broker serves as a middleman between the business and the insurer. Working with an insurance broker can save organizations time and money while eliminating any questions or concerns they may have about specific policies.
Nonprofits should consider hiring an insurance broker if they want to thoroughly understand the ins and outs of their policies and want to form a relationship with a professional that is invested in their coverage needs.
Request A Consultation With Business Benefits Group Today
Insurance brokers provide nonprofit organizations with personalized service and professional guidance when shopping for insurance. Brokers are qualified to analyze business risks and advise organizations accordingly. They can also assist with claims preparation and claims settlements. More importantly, insurance brokers act on behalf of their clients, not the insurance companies.
Located in Fairfax, VA, Business Benefits Group is a full-service benefits and insurance brokerage dedicated to serving for-profit and nonprofit businesses. BBG offers a wide range of services to aid nonprofits in their insurance selection, including business insurance and benefits consulting. For more information or to request a consultation with an experienced insurance broker, contact BBG.