Nonprofit Liability Insurance: Cost & Coverage 

Thang Truong
Thang Truong
Updated on:

Do you know nonprofits file twice as many Directors’ and Officers’ (D&O) claims as public and private companies? There is usually a misconception that since non-profits are not set up like regular companies, they are immune to legal liability issues that normal companies face.

Sadly, the contrary is true. Several studies show that nonprofit organizations can be sued like regular companies. We live in a litigious society where almost anyone can sue for anything. 

However, many of these non-profits run on very tight budgets, making it easy for one high, unexpected cost to wipe out their whole operation. Therefore, it is prudent for charities to invest in enough insurance to protect themselves from the most severe threats. 

This article outlines potential liability insurance coverages that might be useful for nonprofits and their costs.

What is nonprofit liability insurance?

Liability insurance protects non-profit organizations against claims claiming negligent behavior by the organization, its directors and officers, its employees, and volunteers.

Negligence is failing to do what an ordinarily wise person would do in a given situation or doing something that an ordinarily prudent person would not do. 

A plaintiff asserting negligence may also argue that the nonprofit failed to employ the appropriate standard of care while delivering services and that this failure caused damage, death, or other harm at the center of the complaint.

What are the main nonprofit liability insurance coverages?

Although every organization has its own specific requirements for nonprofit insurance, there are several essential policies that the vast majority of organizations ought to have to reduce the amount of liability they are exposed to. The main four liability insurance coverages that nonprofit organizations usually need are: general liability, professional liability, cyber liability, and D&O insurance.

General liability insurance for nonprofits 

Non-profit organizations are shielded against personal injury claims, advertising claims, and property damage claims by general liability insurance coverage. The policy will also cover the costs of legal defense, which include the costs of the court, fees for witnesses, attorney fees, and any judgment and settlement fees.

Nonprofit organizations should generally consider getting general liability insurance. It is even more critical for companies that engage in manual labor or make use of leased office space.

Learn more at the best general liability insurance companies for nonprofits

Professional liability insurance for nonprofits

Professional liability insurance, which also goes by the name professional indemnity or errors and omissions (E&O) insurance, defends you and your company against civil lawsuits brought about by allegations of negligence, frequent mistakes, misrepresentation, and other offenses.

Professional liability insurance protects employees and other volunteer workers in nonprofit organizations when they are sued. It pays the legal defense costs, judgment, settlement, and other associated costs.

Learn more at the best professional liability insurance companies

Cyber liability insurance for nonprofits

Nonprofit organizations have a duty to protect the privacy of their constituents and must take measures to secure their computer systems and electronic data. Unfortunately, even the best-protected systems can be compromised, leading to a potential data breach. When this happens, the nonprofit organization may be held liable for the damages caused by the breach, including the costs of notifying individuals whose information was compromised, repairing or replacing damaged systems, and defending against lawsuits. Cyber liability insurance can help protect the nonprofit from these costs.

Cyber liability insurance covers a variety of risks related to computer security breaches, including legal expenses, damages awarded in civil suits, and the costs of notifying individuals whose information has been compromised. It can also help reimburse the organization for lost income suffered as a result of a data breach. In addition, many policies include coverage for extortion threats, which can occur when hackers demand money in exchange for not releasing sensitive information.

Learn more at the best cyber liability insurance companies

Directors and Officer’s insurance coverage (D&O insurance) for nonprofits

Directors & Officer (D&O) insurance pays the defense costs and damages (awards and settlements) incurred as a result of improper conduct, allegations, and lawsuits brought against the board of directors and/or officers of your firm. It is a sort of insurance that was developed to shield your organization’s leaders (both current and former) from legal action and claims of wrongful conduct if they are sued.

Even though they offer their time to the nonprofit organization, board members are subject to various personal responsibilities and obligations. Some individuals consider the availability of this policy when deciding whether to serve on the board of directors of a nonprofit organization.

Learn more at why nonprofit organizations need D&O insurance and how much does nonprofit D&O insurance cost

Other optional policies nonprofits may consider:

The following policies may not be needed but they are worth considering:

Workers’ comp Insurance for nonprofits

A nonprofit that has staff might need to invest in workers’ compensation insurance. This policy is crucial for non-profits that work in occupations regulated by their state or federal governments.

Commercial property insurance  for nonprofits

Commercial property insurance protects your nonprofit organization against loss or damage to its building and the contents it keeps inside, such as office furniture, computers, and other electronics. This policy safeguards possession from calamities including burglary, arson, vandalism, and natural disasters.

Business Owners Policy (BOP) for nonprofits

Buying a business owner’s policy, often known as a BOP, could be the best action for your nonprofit organization if there is nothing out of the usual about the risks associated with your general liability and property exposures.

A business owner’s policy, sometimes known as a BOP, is a package of insurance that typically include general liability, commercial liability, and business interruption insurance. BOPs are popular among smaller charitable organizations because they offer reasonable coverage at discounted rates.

Is non-profit liability insurance required?

There is no easy response to the issue of whether non-profits require liability insurance. From the perspective of the law, liability insurance is not a legal requirement for nonprofit organizations. 

However, when an organization or a person contemplates obtaining any form of insurance coverage, it is essential to assess the reason they need it and their capacity to inflict damage on others rather than the legal point of view. 

When you consider these critical perspectives, you may also ask whether the non-profit can afford to pay a costly claim out of its own assets, as well as cover legal fees and defense expenses if there is an issue. 

While NGOs do not generate profits like for-profit enterprises, their organizational structure is quite similar. NGOs can incur many of the same obligations as regular businesses. Similarly, they are equally susceptible to being sued by various parties. Regardless of the legitimacy of the claims, it costs time and money to dismiss or settle them in court.

For instance, Sutter Health, a non-profit organization, was recently accused of antitrust crimes. This lawsuit was designated as a class action. This lawsuit was eventually resolved out of court, with Sutter not admitting guilt. The monetary award may exceed $575 million, and Sutter’s business practices might be monitored for up to ten years.

This story illustrates the significance of procuring adequate kinds and quantities of liability insurance in the nonprofit sector.

How much does nonprofit liability insurance cost? 

The average monthly premium for general liability insurance for nonprofit organizations is $55 or $660 per year.

However, the amount you pay might be more or less depending on several factors that we are discussing in-depth below. The following are the average cost of other liability insurance policies non-profits might need.  

Nonprofit liability insurance coverageAverage costs
General liability insurance$55 per month
Professional liability insurance$72 per month
Cyber liability insurance$83 per month
D&O insurance$100 per month

These are just the average rates. Your quotes will be different. Be sure to shop around with a few companies or work with a broker like Simply Business, InsurePro, or CoverWallet to compare several quotes to find the cheapest one for your nonprofit.

What affects the cost of nonprofit liability insurance?  

Insurance premiums for charitable organizations are determined by some criteria, including the following:

Services provided by a nonprofit organization

The riskier the services of a non-profit, the more likely they will pay more for insurance. Nonprofits that offer pet adoption services tend to pay more for their insurance since they deal with life. Also, medical non-profits tend to pay more for their insurance. 

Equipment and property owned by the business 

High-value equipment would mean more expensive insurance policies. Also, a property that does not have risk mitigation measures in place would cost more to insure.  

Revenue generated by the nonprofit 

The higher the income of a non-profit, the higher the chances they will be sued. A higher income means you will likely pay more to cover damages and fines. As a result, non-profits with higher revenue tend to pay more for their liability insurance.  

Location of the nonprofit 

Non-profit companies in cities where litigation is expected or more expensive tend to pay more for insurance. 

Employee headcount

The more employees you have as a nonprofit, the more the possibility of claims. As a result, your liability insurance will increase with the number of employees you have. 

How to get cheap non-profit liability insurance?

The following are some ideas that might get you affordable non-profit liability insurance 

Comparing quotes

Some insurers assess risk differently and charge less. So to find a good deal, you may need cheap non-profits and special assignment firms.

Before buying insurance, be sure to check as many firms as possible. You may locate a better offer more frequently than you believe. Working with a good broker is a good way to compare several quotes in one place. InsurePro, Simply Business, and CoverWallet are great brokers that we recommend.

Buy multiple policies 

Insurers will offer you discounts when you buy multiple policies from them. So, if you are considering purchasing multiple coverages, you should think about buying them from one provider. 

Best nonprofit liability insurance companies  

Hundreds of insurance companies offer several liability insurance coverages for nonprofit organizations. We have researched more than 30 companies and here are our recommendations of the best nonprofit liability insurance companies for your consideration.

Thang Truong

Thang Truong covers small business insurance and small business success at BravoPolicy. He is a licensed P&C insurance agent. Previously, he held product leadership positions at, Capital One, NerdWallet, and Mulberry Technology. He holds a MBA degree from UC Berkeley - Haas School of Business.

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