does a 501c3 need insurance is a tax-exempt organization that can collect tax-deductible donations from individuals and receive grants from government agencies and foundations. In order to qualify for this status, a nonprofit must fulfill one of 27 exempt purposes set forth in Section 501(c) of the Internal Revenue Code, such as “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competitions, and preventing cruelty to children or animals.”
Although the goals of a 501c3 may differ from those of a for-profit business, these organizations operate within a similar corporate structure and are just as susceptible to liability claims. That’s why it’s important for a 501c3 to protect itself with the right insurance coverage.
As a general rule, all nonprofits should carry commercial property insurance, which protects the organization’s physical assets like owned buildings, materials, equipment and inventory. A 501c3 can also add on business interruption insurance, which covers the lost income that would result from an unexpected event that prevents the 501c3 from operating normally.
Depending on the 501c3’s activities and operations, it may also be wise to include a crime policy that pays for losses from the theft of money or other valuable items. Nonprofits with employees should also consider workers’ compensation insurance, which provides coverage for medical and legal expenses in the event that an employee is injured on the job. Directors and officers insurance can help pay for defense costs, settlements or judgement awards resulting from lawsuits related to wrongful acts committed by a 501c3’s Board members.
Another important type of insurance is professional liability insurance, which helps pay for a 501c3’s legal costs if a third party believes that the 501c3’s advice or service caused them financial loss. A 501c3 should also consider an umbrella or excess liability policy to provide additional policy limits in the event of a catastrophic liability loss.
Finally, a 501c3 should consider adding on auto insurance coverage for any vehicles that are used for work-related travel. Volunteers and employees who take seniors to appointments or drive to pick up food donations or in-kind donations could be held liable if they are not insured.
A 501c3 should also consider adding on a workers’ compensation policy if it has any full-time or part-time employees. In addition, it should add on a directors and officers (D&O) policy to cover the organization’s management team against lawsuits related to their oversight of the 501c3.
While each 501c3 has its own unique needs, it is important for these organizations to have the proper insurance coverage in place to protect themselves from the many risks they face on a daily basis. Finding a broker who understands the intricacies of nonprofit insurance and can customize a package that meets all of your organization’s needs is essential. A good broker will benchmark your nonprofit’s policy against others in your vertical and across the country to make sure you are getting the most competitive pricing. To learn more about how Sentinel Risk Advisors can assist you with your 501c3’s insurance needs, please contact us.