Understanding Regulations When Securing Insurance for Nonprofits

Nonprofit organizations are tasked by their state with securing certain insurance requirements in order to operate. And while liability insurance isn’t a direct requirement by the IRS as a condition for granting 501(c)(3) tax-exempt status, having appropriate insurance is vital in protecting an organization’s assets and continuity of operations, minimizing legal risks associated with noncompliance, and helping build trust with donors and stakeholders when applying for grants and sponsorships.

Understanding insurance requirements for nonprofits

Insurance regulations and requirements will vary based on the type of nonprofit, as well as where it is located. However, there are some commonalities that apply to most organizations. When talking with your nonprofit clients, it’s important not only to discuss the more common types of insurance coverages they’ll need to protect the organization, such as general liability, property, auto and cyber insurance, but also to include those that may be required by their state in order to maintain compliance with their nonprofit status.

Workers’ compensation insurance. While regulations will vary by state, most nonprofits with employees require workers’ compensation insurance to protect their paid staff in the event of a covered work-related injury.

Liability insurance for special events. In addition to general liability insurance, some states require organizations that hold fundraisers, such as raffles, auctions, and other fundraising methods, to secure specific liability coverage and limits for these types of activities. Common types of insurance for these events can include special event liability, liquor liability, and third-party property and bodily injury liability coverage.

Directors and officers insurance. Often considered a “must-have” to ensure responsible governance in protecting board members and the organization from legal and financial risks, D&O insurance is a commonly required insurance coverage by some states in order for organizations to operate.

Volunteer accident insurance. While this type of insurance for nonprofits is typically optional and not required by law in most states, it is nonetheless an important coverage to consider. Nonprofits have a duty of care to their volunteers just as they do to their paid employees. This duty includes providing a safe environment, proper training, and reasonable precautions to prevent harm.

It’s important to note that many states exempt volunteers from workers’ compensation insurance coverage if they are not being paid. In this case, should an injury occur while performing volunteer activities, a volunteer would not have coverage for their medical expenses resulting from the injury sustained. A volunteer accident insurance policy provides medical coverage for volunteers and protects the nonprofit from potential litigation should the volunteer have no primary medical insurance and suffer an injury while working for the organization.

Conclusion

It’s critical that your clients know their state’s specific insurance regulations and requirements in order to maintain their nonprofit status and mitigate their risk exposure. It is these laws that typically dictate the minimum coverage requirements, reporting obligations and licensing for certain types of insurance with which organizations must comply. For these reasons, it is advisable for your clients to consult with a legal expert and/or their state’s attorney general’s office for specific guidance. At that time, you can assist them in securing the right type of insurance.

About Charity First

Charity First is committed to providing our retail partners across the country with best-in-class underwriting, consistent and responsive service, and risk management services that include directors and officers liability insurance and accident insurance for volunteers and participants. To learn more, please contact us at 800-352-2761 or marketing@charityfirst.com.

Looking for nonprofit insurance coverage? Reach out to Maureen Dyson, Area Executive Vice President, at maureen_dyson@charityfirst.com or connect with her on LinkedIn.