As a nonprofit organization, your board members are at the cornerstone of your mission. Without them, your business wouldn’t be where it is today.
Here’s the problem: In the case of a lawsuit, members of your board may be held personally liable for claims made against your organization. Luckily, you can protect them with directors and officers insurance (also known as D&O insurance).
In this all-inclusive directors and officers insurance nonprofit guide, we will answer all of your questions about the insurance, including:
- What is D&O insurance?
- Does it cover nonprofits?
- How will it help?
- What is the cost of D&O insurance for nonprofits?
Ready to get into the meat of it? Let’s dive right in!
What is Directors and Officers Insurance?
In simple terms, D&O insurance is a plan that protects your nonprofit organization’s board from D&O claims and allegations brought against your business.
If your team is sued over decisions they made on behalf of the organization, such as wrongful employment practices, improper fund management, or regulation compliance issues, then this insurance will:
- Cover defense costs
- Handle settlements and judgements
- Safeguard personal assets
D&O insurance also shields your board members, directors, and officers from intellectual property infringement and failure to comply with industry regulations claims.
Does This Insurance Cover Nonprofits?
Yes! D&O insurance covers nonprofit businesses of all shapes and sizes.
- Community action agencies
- Homeless shelters
- Home health
- Educational institutions
- Goodwill industries
- & many more
No matter how big or small your company is, insurance plans such as D&O and general liability insurance for nonprofits are always highly recommended to keep everyone involved safe from costly claims. At the end of the day, if you have a board of directors and officers, this plan is a must!
Keep reading to learn how directors and officers insurance can benefit you and your team.
3 Must-Have Benefits of D&O Insurance
Since D&O claims against your nonprofit organization can be made by donors, third-party vendors, competitors, employees, and government regulators, it is highly advised that you seriously consider investing in this type of insurance.
Along with its ability to preserve your board members in the case of litigation, D&O insurance also has many other benefits. Here are 3 great benefits that your nonprofit will acquire if you invest in this plan.
1. Protect the Mission
One of the most important benefits of D&O insurance is its ability to safeguard your organization from collapse.
Unfortunately, many lawsuits that fall under the D&O umbrella can be so serious and costly that the entire entity may go under. This jeopardizes the nonprofit’s mission to serve.
Luckily, with this insurance on your side, these costs will be taken care of so the overall business won’t take a catastrophic hit.
2. Recruit New Board Members
When you have the right coverage onboard, qualified directors and officers will be more inclined to apply and stay with your company. This is a huge bonus for any nonprofit organization! Here’s why.
High-quality and experienced team members will automatically reduce the risk of costly lawsuits in the future. They know what works and what doesn’t work. After all, you want a board of directors and officers that understand industry regulations and proper employment practices.
Many times, these qualified leads will only apply to a position that offers D&O coverage. That’s why it’s more important than ever to invest in this insurance plan!
However, even with the best of the best team, accidents still happen and lawsuits can still come knocking at your door. This leads us to our next point.
3. Decrease Reputational Damage
When your nonprofit is sued, your reputation is at risk. And not just your personal reputation, but that of the entire organization!
For example, in 2019, the Boy Scouts of America (BSA) had to pay over $150 million in settlements for sexual abuse claims that fell on the heads of the board members and the organization as a whole. These claims not only ruined the reputation of the organization, but it also put a pretty big dent into their finances.
If a D&O claim is made against you and your officers, your insurance can provide compensation to victims and reduce damage to your overall reputation.
What is the Cost of D&O Insurance for Nonprofits?
By now, you might be wondering, “How much is the cost of D&O insurance for nonprofits?”
First and foremost, the cost of your insurance plan is largely determined by the size of your organization. To calculate this cost, insurers will take a look at how many board members and employees you have and your annual revenue stream. Furthermore, the cost is also determined in part due to risks associated with your specific industry and your exposure to claims.
So, what is the cost range of D&O insurance?
Some small start-ups may pay as low as $3,500 with a limit of $1M. Meanwhile, large and established organizations that pull in hundreds of millions of funds can pay upwards to $40,000 for a plan with a limit of $20M.
It all depends on the size of your business and the level of risk involved in your particular industry.
D&O Insurance Safeguards Your Nonprofit
When it’s all said and done, your board of directors and officers are an integral part of the success of your organization. There’s no question about that!
D&O insurance is here to protect them and keep your nonprofit running smoothly. For more information.
