Do Nonprofits Need Liability Insurance?

Hoffman Hanono
February 20, 2023

Customers and employees file lawsuits against for-profit companies regularly. But people can (and do) take legal action against nonprofits, too.

These claims can be financially devastating if your organization isn’t covered. So do nonprofits need liability insurance? Let’s take a look.

What Types of Liability Insurance Are There?

To the uninitiated, “liability insurance” may sound like just one type of insurance. However, there are several specific types. Depending on the kind of nonprofit you’re running, you may need one or more of the following:

Do nonprofits need liability insurance for every one of these? Perhaps not. But depending on the nature of your nonprofit, you may need a few of them or even a different type of insurance altogether.

What Type of Liability Insurance Should My Nonprofit Get?

Most insurance experts advise nonprofits to at least have general liability insurance. This insurance protects your nonprofit if a third party is injured (or their property is damaged) due to your organization’s day-to-day operations.

Your nonprofit must have workers’ compensation insurance in every state except Texas. It covers medical costs and lost wages for employees injured at work.

It’s also wise to get a sense of the claims that most often affect nonprofits. Cyber liability and directors and officers (D&O) claims are most prevalent.

Cyber liability insurance covers any expenses from a data breach (like a leak of clients’ personal details).

D&O insurance protects your nonprofit in the event of a claim of harassment, wrongful termination, or discrimination. It also protects your organization if any claims are made due to a given management decision.

So do nonprofits need liability insurance? The answer is yes, but the types of policies you need depend on several other factors.

Given the many types of liability insurance, it can be overwhelming to try to make this decision yourself. An insurance professional can discuss your nonprofit with you and help ensure your organization is adequately covered.

What Other Factors Should I Consider When Choosing an Insurance Policy?

Your insurance journey isn’t done once you’ve decided on which types of policies you need. When considering policies, you’ll need to look closely at the language to ensure you know what is covered and what isn’t.

This is a lot easier said than done. If you’ve ever read through an insurance policy, you know that the language is fairly complex. An insurance professional will be able to review the terms of a policy with you to ensure you fully understand them.

There’s also the matter of the deductible. Your board of directors should try to strike a balance between deductibles and monthly premiums. Generally, policies with lower deductibles have high monthly premiums. Policies with low monthly premiums have higher deductibles. Look closely at both factors and try to maximize your insurance policy’s value.

Keep Your Nonprofit Protected

Choosing the wrong liability insurance policy (or, worse, no policy at all) can prove to be a costly miscalculation. It can be difficult to know what type(s) of insurance you need, but you don’t have to make that decision alone.

At Hoffman Hanono Insurance, our insurance professionals can assess your nonprofit’s risk and help you select policies to protect you fully. Reach out to us to get started today!