Insurance basics for small charities

This guide is for board members and volunteers at small charities who know they "should have insurance" but aren't sure what kind, or whether the policy they have covers what they think it does. Insurance can feel confusing and expensive. But one accident, lawsuit or fire can end a small charity that isn't covered. After reading, you will understand the main types of cover, the questions to ask, and how to shop sensibly.

Why charities need insurance

Insurance moves certain risks from your charity to an insurance company, in exchange for a regular payment called a premium. If something covered goes wrong, the insurer pays some or all of the cost, up to a set limit. You usually pay the first part of any claim yourself, called the deductible.

Charities face real risks: someone slips at your event, a volunteer is hurt lifting boxes, a board decision is challenged in court, donor data is stolen, a storm floods your storage room. Many landlords, funders and event venues also require you to have insurance before they will work with you.

The U.S. Small Business Administration (SBA) gives a good rule of thumb: insure against things you wouldn't be able to pay for on your own.

The main types of cover

General liability

General liability insurance covers claims that your charity caused injury to someone or damage to their property. The SBA describes it as protecting against losses from bodily injury, property damage, medical expenses, libel, slander, and the cost of defending lawsuits. This is usually the first policy a charity buys, and the one venues and landlords ask about.

Directors and officers (D&O)

Directors and officers insurance, often called D&O, covers board members and officers if someone claims they made a wrongful decision in their role, such as mismanagement, breach of duty, or employment-related claims. It helps protect volunteers who serve on your board, and good board members often ask about it before they join. Read carefully what a D&O policy covers. Employment-related claims, for example, may need specific wording or a separate policy.

Property

Property insurance covers damage to things your charity owns, like equipment, furniture, stock and donated goods, from events such as fire, theft or storms. If you rent space, your landlord's insurance usually covers the building but not your contents. Check whether flood is included. It often isn't.

Volunteer accident

Volunteer accident insurance pays some medical costs if a volunteer is injured while volunteering for you. Volunteers are usually not covered by workers' compensation, so this can fill a real gap. It is often fairly simple to add.

Auto

If your charity owns vehicles, you need commercial auto insurance. If volunteers or staff drive their own cars for your work, ask about hired and non-owned auto coverage. It can protect the charity if a claim arises from someone driving their own or a rented vehicle on charity business. Ask your agent whose insurance would pay first if a volunteer had a crash in their own car, and tell volunteers what you learn.

Cyber

Cyber insurance can help pay costs after a data breach or cyberattack, such as investigating what happened, notifying affected people, and restoring systems. If you hold donor or client data, ask about it. Insurers may ask about your security habits, such as two-step login and backups (see our cybersecurity basics guide).

Professional liability

If your charity gives advice or professional services, such as counseling, tutoring, legal help or health services, professional liability insurance covers claims of mistakes or negligence in that service.

If you have employees

The SBA says businesses with employees must carry certain insurance, such as workers' compensation and unemployment insurance, and that requirements vary by state. Check your state's rules for nonprofits as soon as you hire your first employee.

What the Volunteer Protection Act does and doesn't do

The federal Volunteer Protection Act of 1997 limits the personal liability of volunteers for harm they cause while acting within their volunteer role, if certain conditions are met. That is reassuring, but it has important limits:

• It doesn't protect volunteers whose harm was caused by willful or criminal misconduct, gross negligence or reckless behavior.
• It doesn't apply to harm caused while operating a vehicle for which the state requires a license or insurance.
• It says nothing in that section affects the liability of the nonprofit itself.

How to shop for insurance

The SBA's buying advice works for charities too. We have added a fourth step:

1. Assess your risks. Think about accidents, natural disasters and lawsuits that could hurt you.
2. Find a reputable licensed agent. Look for an agent or broker who works with nonprofits. The SBA notes that agents are paid commissions by insurers, so choose one who puts your needs first.
3. Shop around. The SBA says prices and benefits can vary significantly. Compare quotes from more than one agent.
4. Review regularly. Your risks change as your charity grows.

Questions to ask any agent:

• Do you work with other nonprofits of our size?
• What exactly does this policy cover, and what does it exclude?
• What is the limit per claim, and in total per year?
• What is the deductible?
• Are volunteers and board members covered? Are special events covered?
• Can we bundle policies? (The SBA mentions a business owner's policy, which combines common types of cover into one package.)
• How do we make a claim, and how fast must we report an incident?

Ask the agent to explain any wording you don't understand. You are allowed to ask "what does that mean?" as many times as you need.

Looking after your policies

• Keep copies of every policy where the board can find them.
• Put renewal dates in a shared calendar, and start reviewing two to three months before.
• Tell your insurer about new programs, vehicles, events or locations.
• Report incidents quickly. Many policies require prompt notice.
• Ask partners and venues for their certificate of insurance, and keep yours ready to share.
• Review your coverage with the board once a year.

Your insurance checklist

• List your main risks and what each could cost
• Check whether any landlord, funder or venue requires certain cover
• Get quotes for general liability and D&O first
• Ask about volunteer accident, property, auto, cyber and professional liability
• Check your state's rules if you have employees
• Read each policy's exclusions and limits
• Put renewal dates in a shared calendar
• Review coverage with your board every year

Insurance isn't exciting, but it lets your board and volunteers serve with peace of mind. A good agent and a yearly review will keep you protected as you grow.

If you want someone to look over your insurance questions, ask a member charity for help through the Exchange.

General information, not legal, tax or financial advice. Rules change and every situation is different, so check the official sources and talk to a qualified professional before you act.