<aside> What’s this about? An insurance policy provides financial protection to the policyholder in cases where something bad happens that the policyholder is found to be financially responsible for. Your legal entity, as well as its directors, can be held financially liable for adverse events that your organization is involved in.
What do I need to do? Obtain required and recommended business insurances. Consider the optional insurances, which may or may not be suitable for your organization depending on its activities and risk appetite.
Contents
</aside>
<aside>
Further reading
Databases
</aside>
Business insurance is a broad category of coverage that helps protect an organization from financial losses due to unexpected events like accidents, lawsuits, or property damage.
Unexpected catastrophe? Business insurance can fill in any gaps in coverage. This will make sure that:
There are several types of insurance that are suitable for nonprofits, like general liability or events insurance. For each type of insurance, your organization pays a monthly premium to cover or reduce the costs of claims made against it.
Review the following types of business insurance and carefully consider which to obtain for your organization.
You also may be legally required to purchase certain types of business insurance.
In what follows, we’ve listed approximate costs for each type of insurance. Treat these as ballpark estimates, since your quotes will depend on a range of factors — like your industry, location, headcount, and specific risk factors.
(For insurances relating to staff, like healthcare, dental, and vision, see Implement staff benefits.)
The federal government requires every business with employees to have workers’ compensation, unemployment, and disability insurance.
| Protects you against… | Suitable if your organization… | Approximate cost | |
|---|---|---|---|
| Workers compensation | Employees suing you if injured in the course of employment, by providing wage replacement and medical benefits to employees. |
Example: “Slip and fall” accident in the workplace producing a back injury. | Has employees | 1% of payroll | | State Unemployment | States will often require organizations with employees to have state unemployment insurance. This is typically managed via a payroll tax and just requires registration. Your payroll provider should instruct you on how to do this. Businesses also pay federal unemployment insurance, but 501(c)3s are exempt from this requirement. Examples: Layoffs; Company closures. | Has employees | 1% of payroll | | Disability | Some states have state disability schemes — these are handled by payroll taxes like unemployment.
Example: An employee is diagnosed with a serious illness that prevents them from working for several months. | Has employees | 0.5% of payroll
**** |
Unemployment and disability insurance are primarily designed to protect employees, rather than your organization — although they provide indirect protection to your organization too.
Some states also require additional insurance. Laws requiring insurance vary by state. Visit your state’s website ****to find out the requirements for your organization.
We’d recommend obtaining the following insurances without caveat.
In each case, the insurance is relatively inexpensive, and the costs of claims can be very high — which is why these insurances are especially common across organizations.
| Protects you against… | Suitable if your organization… | Approximate cost | |
|---|---|---|---|
| Employers Liability Insurance | Claims from employees who suffer work-related injuries or illnesses. |
Examples: “Slip and fall” accidents on your premises or events; Property damage on your premises or rented space. | Has employees (more so if in an industry with higher risks of workplace injuries) | $10 per employee per month | | General Liability Insurance | Claims made by third parties for injury or damage caused by the organization’s business activities or products.
Example: A customer is injured by a defective product. | Sells services or products to third parties | 0.25% of revenue | | Professional liability (Errors and Ommissions) | Financial loss as a result of malpractice, errors, and negligence.
Examples: Failure to deliver work; Providing a service with significant errors. | Provides professional services or advice | $75 per employee per month | | Directors and officers | Claims made against directors and officers for alleged wrongful acts while managing the company, which may put their personal assets at risk.
Example: A lawsuit from investors or donors around misuse of funds. | Has a board of directors with personal liability | $200 per month |
The following types of insurance may be worthwhile, depending on your organization’s activities and risk appetite.
| Protects you against… | Suitable if your organization… | Approximate cost | |
|---|---|---|---|
| Crisis containment | Costs associated with a crisis, such as public relations expenses, legal fees, and communication strategies to protect the organization’s reputation. |
Example: A data breach exposes customer information, causing reputational damage. | Sells products which, if recalled, would cause significant reputational damage | $10 per employee per month | | Key person | Financial losses in the event of the death or extended incapacity of a key employee whose skills, knowledge, or leadership are crucial to the business.
Example: The CEO passes away. | Heavily depends on one or a few key individuals for success | $250 per key person per month | | Event | The cancellation, postponement, or interruption of an event due to unforeseen circumstances. It may also cover liability for injuries or damages that occur during the event.
Example: A storm forces a cancellation of a planned launch event. | Frequently hosts events | $500 per event | | Commercial property | Loss and damage to company property due to a wide variety of events.
Examples: Damage from fire, smoke, wind and hailstorms, civil disobedience and vandalism. | Owns or leases physical property | $150 per month | | Employment practices liability | Disputes between management and employees.
Examples: Lawsuits around wrongful termination, harassment, or discrimination. | Has many employees or is in an industry prone to employment-related lawsuits | $150 per month | | Fiduciary liability | Disputes related to an organization’s benefit plans.
Example: Employee sues for mismanagement of company’s retirement plan | Risks mismanagement of employee benefit plans | $75 per month | | Cyber | Cyber attacks.
Examples: Stolen data; Ransomware. | Manages customer data which, if leaked, would cause significant reputational damage | $200 per month |