If you are a nonprofit founder, you probably understand that your organization’s directors and officers need an insurance policy. Being a nonprofit board member means an increased risk of legal allegations. Morally, you are responsible for the finances if they receive complaints or claims due to organizational policies.
However, an average nonprofit claim against board members can cost between USD 35,000 and USD 100,000 to settle. As a founder, you might not have the financial capability to pay that in court.
That is why you need a directors’ and officers’ liability insurance policy. According to Forbes, these policies cost approximately USD 1,240 a year. These D&O liability policies can be tailor-made to fit your nonprofit’s specific requirements. It will safeguard your board members from personal financial loss.
In this blog, we will discuss how tailored D&O liability can help your nonprofit stay afloat.
Why Do Nonprofits Need Directors’ and Officers’ Insurance?
It is common for nonprofit organizations to look for volunteers with a ‘passion for the cause’ over experience. Hence, you might recruit individuals who aren’t savvy in business operations and responsibilities as directors or officers.
After recruitment, the board members must oversee the budget, public relations, and human resources. These general duties and responsibilities become potentially risky when handled by inexperienced individuals in the fundraising business.
Due to a lack of experience with business practices, your organization can operate inefficiently. As a result, there is a higher risk of lawsuits against the directors and officers based on bad governance and poor decision-making.
These lawsuits can be allegations of mismanagement, neglect, or breach of duty. It can harm your organization, both financially and reputationally.
That is why nonprofits need a D&O insurance policy. These offer comprehensive protection from all lawsuits filed against your board members. It covers employment liability, governance liability, and fiduciary claims. With the correct insurance provider, you can get tailored policies for your nonprofit’s needs.
According to Oakwood D&O Insurance Brokers, this insurance policy is complicated because it has multiple coverage terms. Examples suited for nonprofits include the A-side, which covers personal liability, and the B-side, which offers corporate reimbursement. You can also get customized policy provisions based on your need for defense coverage.
How Do You Customize D&O Policies for Nonprofits?
D&O insurance can protect your nonprofit and board members from bankruptcy. However, this would only be fruitful if you chose a tailored D&O policy suited for nonprofits.
For that, you need to follow these tips when customizing the insurance policy:
- Choose both in-built and optional benefits to tailor the policy to your nonprofit’s requirements.
- If you have a nonprofit organization that’s nationwide, choose the territorial customization option.
- Select a short-term policy or long-term coverage based on your board member’s tenure.
3 Benefits of D&O Insurance Policies for Nonprofits
Even when acting in good faith, your nonprofit’s board members will expose themselves to legal repercussions. In that situation, a D&O insurance policy can benefit you in multiple ways, like:
- It gives you a total or partial reimbursement of the legal costs and offers you peace of mind.
- By protecting the directors and officers, this policy also safeguards the nonprofit as a whole.
- It gives you the flexibility to customize the policy and protect your nonprofit beyond indemnification.
In most cases, D&O insurance enhances the nonprofit owner’s duty of loyalty, obedience, and care.
6 Factors to Consider When Selecting a D&O Insurance Provider for Your Nonprofit
You must consider the following factors when searching for a D&O insurance provider for your nonprofit:
- Check the provider’s nonprofit knowledge and ability to tailor the D&O policy for your organization.
- Understand the coverage you are investing in and communicate it with your board members for transparency.
- Go through the terms and conditions of the D&O policy to determine if it works for your nonprofit.
- Analyze the insurance provider’s claims processing reputation and timeline to determine if it aligns with your needs.
- Choose an insurer with good financial strength, reputation, credibility, and longevity in the industry.
- Compare a few premiums offered by different insurance providers to choose a policy that best suits your financial standing.
Remember, D&O insurance does not cover lawsuits filed before the start of this policy, criminal misconduct, or illegal activities.
The Bottom Line
Do you want to stand out among the 1.5 million nonprofits in America? Then, you need a customized D&O liability insurance policy.
These policies protect your board members when accused of causing financial loss, theft of intellectual property, and discrimination against volunteers. As a result, it will attract more talent, help you retain board members, and ensure your nonprofit organization’s financial stability. Consider this a risk management plan that protects individual directors from financial ruin.