Nonprofit Board Insurance: 4 Vital Tips for Every Board Member

Protecting the People Who Protect Your Mission

Nonprofit organizations play a crucial role in our communities, providing essential services and making a positive impact on the world. But as boards of directors play an increasingly complex and demanding role, the need for adequate insurance coverage has become paramount.

What is Nonprofit Board Insurance?

Nonprofit board insurance, also known as Directors and Officers (D&O) insurance, protects board members from personal liability in the event of a lawsuit. This coverage can cover a wide range of claims, including:

• Allegations of negligence or misconduct
• Breach of fiduciary duty
• Errors and omissions
• Wrongful termination

Why Nonprofits Need Board Insurance

According to a study by the National Council of Nonprofits, over 12,000 nonprofit organizations are sued annually. While most lawsuits are dismissed, the costs of defending against even a frivolous claim can be substantial. Board insurance can provide financial protection and peace of mind for board members.

4 Tips for Every Board Member

1. Understand Your Coverage

Thoroughly review your nonprofit's board insurance policy to understand the scope of coverage and any exclusions or limitations. Ensure that the coverage aligns with the organization's activities and potential risks.

2. Comply with Fiduciary Duties

Board members are required to fulfill their fiduciary duties, which include acting in the best interests of the organization and exercising prudence in decision-making. By adhering to these duties, board members can minimize the risk of liability.

3. Seek Legal Advice When Necessary

If faced with a potential lawsuit or other legal issue, it is crucial to seek legal advice promptly. An attorney can help you understand your rights and obligations, develop a defense strategy, and negotiate a favorable resolution.

4. Consider Excess Coverage

The standard limits of board insurance coverage may not be sufficient to protect board members from catastrophic losses. Consider purchasing excess coverage to provide additional financial protection.

Things You Need to Know About Nonprofit Insurance

• The average cost of a D&O insurance policy for a nonprofit organization is between $1,000 and $5,000 annually.
• The amount of coverage needed depends on the size and risk profile of the organization.
• Nonprofits can purchase board insurance through commercial insurance carriers or specialized brokers that specialize in nonprofit insurance.
• It is important to shop around and compare quotes from multiple carriers before making a decision.

Helpful Tip

Aggregate Deductibles: Consider purchasing a board insurance policy with an "aggregate deductible." This type of deductible allows the organization to pay one deductible for all claims within the policy period, rather than a separate deductible for each claim. This can provide significant cost savings if multiple claims are filed.

Conclusion

Nonprofit board insurance is a critical risk management tool that protects board members from personal liability. By understanding the coverage, complying with fiduciary duties, seeking legal advice, and considering excess coverage, board members can help ensure that their organization is shielded from financial harm and can continue to fulfill its mission.