Top Five Insurance Mistakes Nonprofits Make and How to Avoid Them

Insurance mistakes can be costly, and when you’re running a nonprofit with thin margins, you don’t have money to waste. To help you stay on budget and on mission, here’s a look at the top five insurance mistakes nonprofits make, and how you can avoid them.

Mistake #1: Assuming You Won’t Be Sued

You’re serving your community and making the world a better place, so why would anyone want to sue you?

As it turns out, there are a lot of possible reasons.

• An employee gets into an accident while running errands for the nonprofit and is found at fault. Now the other driver is suing your organization for medical costs and lost wages.
• You create merchandise as part of a fundraiser, and it includes an illustration that you’ve paid for. Unfortunately, the designer you hired ripped it off from another artist, and now that artist is suing your organization for copyright infringement.
• You’re faced with unexpected emergency costs, so you have to reallocate funds. When word gets around, a large donor sues for misappropriating funds, claiming the donation was earmarked for a specific use and should not have been used for anything else.
• A volunteer is injured and requires surgery. The volunteer doesn’t want to sue, but they also can’t afford the medical bills and lost wages, so they feel they have no other choice.
• You have to lay off some of your workers due to budget restraints. One of the employees you lay off claims they were selected because of their age, race, or gender, and they file a lawsuit alleging unlawful termination.

All organizations have risks, including nonprofits. In fact, nonprofits can come under extra scrutiny because of the important role they serve in the community.

How can nonprofits avoid this mistake? A strong liability insurance program can protect your mission. Common policies nonprofits should consider include general liability, auto liability, D&O, employment practices liability, and volunteer accident and injury.

Mistake #2: Ignoring Coverage Exclusions

If you’re aware of the exclusions in your insurance policies, you can plan accordingly and avoid unexpected costs. A commercial property policy won’t cover wear and tear, so you need to keep up with maintenance. A general liability policy won’t cover auto liability, so you need an auto liability policy.

Problems occur when you don’t know what’s in your policy. For example, if your policies exclude coverage for volunteers, but you think they’re covered, you won’t take the steps needed to secure coverage.

How can nonprofits avoid this mistake? Review your policies for exclusions and discuss the exclusions with your broker if you have any questions. Also check for new exclusions when your policies renew.

Mistake #3: Skimping on Essential Coverage

When budgets are tight, it can be tempting to save on premiums by lowering limits, increasing deductibles, or cutting policies completely. Unfortunately, while these measures might save a little money in the short term, if you end up with uncovered losses, you could be paying much more in the long run.

How can nonprofits avoid this mistake? When you cut coverage, you’re basically deciding to self-insure the loss. Make sure you’re prepared to do that. If a loss occurs, will you have the funds needed to cover your costs, whether it’s a high deductible or the total amount? Also check your legal and contractual obligations to verify that you won’t be in non-compliance.

Mistake #4: Paying too Much for Coverage

You don’t want to skimp on essential coverage, but you also don’t want to pay more for coverage than you have to.

This can happen for a number of reasons, from overlaps in coverage to programs that aren’t optimally structured. When rates go down, as has been happening in many property and casualty lines recently, it may also be possible to lower your costs by negotiating your rates or switching carriers.

How can nonprofits avoid this mistake? Talk to your broker about strategies that you can use to lower costs.

Mistake #5: Working with a Broker Who Doesn’t Know the Nonprofit Market

The nonprofit sector isn’t the same as the for-profit sector. There are different risks, different concerns and different insurance needs.

An insurance broker who understands the nonprofit market can help you identify coverage gaps, create programs tailored to your risks and get coverage from carriers that cater to the nonprofit space. An insurance broker who lacks experience in the nonprofit space may not be prepared to do all this.

How can nonprofits avoid this mistake? Look for an insurance broker who specializes in serving nonprofit organizations like yours.

Heffernan Insurance Brokers is proud to serve the nonprofit sector. Our nonprofit division offers exclusive products and services, access to nonprofit-focused carriers, and competitive prices. Learn more.