The board of directors is responsible for making important decisions on the operation of non-profit organizations. Directors have the authority to develop the strategies and goals of the organization, choose how money is spent, and set pay for employees.
Even though many of these people take these positions on a volunteer basis, they are liable to get sued. Statistics show that non-profits face 50% more D&O claims than regular companies. Therefore, the leaders of these organizations must get legal liability protection for any choices they make for the organization.
Continue reading if you aren’t completely clear on this insurance or why it is necessary for non-profits. Find out everything you’ve ever wanted to know about directors’ and officers’ insurance, especially how much it may cost your non-profit organization.
- How much does D&O insurance for nonprofit cost?
- How much is the average D&O insurance cost per month for nonprofit?
- Factors that affect the cost of Directors & Officers insurance for non-profits
- How to get cheap D&O insurance for non-profits
- What is D&O Insurance and what does it cover?
- Why do non-profits need D&O insurance?
- Best D&O insurance companies
How much does D&O insurance for nonprofit cost?
For non-profits with no employees, a D&O policy with up to $1 million coverage limit should cost about $550 per year. For organizations with 10 full-time employees or less, you should expect to pay around $1,300 a year. For organizations with up to 50 full-time employees, the average nonprofit D&O insurance cost is around $5,000 a year.
The actual cost of this coverage will vary substantially depending on the insurer you pick, the scope of coverage necessary, and several other factors discussed below. D&O insurance offers coverage for both the legal expenditures used in defending your organization and the settlements that may result from any claims made against you.
How much is the average D&O insurance cost per month for nonprofit?
With nonprofit organizations of less than 10 employees, the average D&O insurance cost is $100 per month. However, this varies based on the organization sizes. See more details in the table below:
|Nonprofit organization sizes||Average nonprofit D&O insurance cost|
|Organizations with no full-time employees||$50 per month|
|Organizations with less than 10 full-time employees||$100 per month|
|Organizations with up to 50 full-time employees||$417 per month|
These are just the averages. You will pay a different amount for a nonprofit D&O policy for your organization. Be sure to shop around with a few carriers or work with a top broker to get and compare several quotes to find the cheapest one for your organization. We recommend the following brokers:
- Simply Business: Best brokerage firm to find the cheapest coverage
- CoverWallet: Best brokerage firm to compare several quotes from top-tier carriers
- InsurePro: Best brokerage firm with a sleek and excellent digital experience
Factors that affect the cost of Directors & Officers insurance for non-profits
Some of the cost drivers for directors’ and officers’ insurance are industry-specific, while others are determined by your organization’s age, financial strength, and the number of workers. Listed below are the essential elements that might have an impact on the cost of directors’ and officers’ insurance:
Age of the non-profit
Younger non-profit organizations generate more significant liabilities for insurance carriers since their behavior is less predictable and their records of demonstrated good management are less long-standing. While evidence of a good track record is preferred, underwriters will also consider recent substantial developments impacting the firm, such as mergers or acquisitions, shareholder arrangements, and changes in the company’s financial position. In most cases, new non-profits do not have these records.
Your organization’s financial strength
Your rates may be cheaper if you have good financial health, consistent growth, and successful debt management. On the other hand, volatile cash flow is considered a warning indicator by financial analysts. A non-profit with excellent financials that operates in an industry with a favorable economic outlook would have cheaper insurance premiums than a company that does not.
Size of the organization
The size of the non-profit is the most often used factor in deciding the price of D&O insurance. The size of a non-profit may be defined by many factors, including yearly revenue, total money raised, the number of investment rounds completed, the number of donors, and other factors. Usually, the larger the size, the more the
Important terms in the policy
Every insurance company writes its policies somewhat differently, so pay special attention to the tiny print when purchasing a policy. Negotiable terms exist in some but not all of these areas; a qualified broker may assist you in getting adequate coverage at the lowest possible price and highlighting variances in coverage.
The cost of D&O insurance may also be influenced by your willingness to accept risk in the first place. Non-profits that are risk cautious might choose a lower retention rate (the amount that the insured must pay before the policy starts). This will increase premium costs. Alternatively, a corporation that is more willing to take on risk may choose a greater retention rate, which will result in a lower premium rate.
History of claims
Any previous claims will impact how the underwriter perceives the non-profit. Generally speaking, a non-profit with no D&O claims in the last five years and has no present litigation or regulatory actions might pay lower rates.
How to get cheap D&O insurance for non-profits
To keep your premiums at the lowest cost possible, the following are some ideas Non-profits can use:
Compare several quotes
Insurers differ when it comes to pricing. Some companies see the risk differently, so they do not charge as much. Some others have discounts for non-profits and tend to lower prices for companies on special assignments.
The idea is that before you pay for D&O insurance, be sure that you have checked as many companies as you can. More often than you think, there is always a better offer somewhere; it’s just left to you to find that deal. Working with a top broker like CoverWallet, Simply Business, ez.insure, or commercialinsurance.net is a good way to get and compare several quotes in one place conveniently. These are the top brokers specializing in small businesses and nonprofits. They can pull several quotes from their partners for you to compare and choose the cheapest one.
Keep to regulatory standards.
A company that keeps to regulatory standards will likely not have many lawsuits. Insurers usually prefer such companies since insuring them is less risky. As a result, you may get discounts on your premiums if the company sees that you are committed to keeping regulatory standards.
Pay your premiums in full
Like with any other insurance policy, paying your premium upfront will get you a fee reduction. The reason is, Insurance companies are happy that you are trusting them for the entire year, and so they will want to help you cut the cost as much as they can. Although this is more expensive than paying monthly, it will cost you less in the long run. Also, you might not be able to opt-out if the services do not meet your taste later on.
Ensure you get the right coverage type
While many businesses are concerned with how much their D&O insurance costs, any savings realized by lowering the premium would be illusory if the policy does not provide the appropriate level of protection. The majority of D&O policies are renewed periodically, and the terms and circumstances of the policies are subject to change. Remember to think about the limitations of your responsibility while increasing or continuing your insurance coverage, as well. Are they sufficient to protect you from your risks?
Companies that have many exposures often find themselves in need of more comprehensive coverage. Some companies consider less expensive policies with terrible contractual conditions from a low-rated carrier as better alternatives. While this may work, it could cause several issues if the company has serious lawsuits. You might want to go with better policies with better conditions but remember they are more expensive. However, they come with more excellent coverage given by a reputable carrier.
Be aware of any exclusions in your policy and any limitations. For example, most D&O plans do not cover claims arising from wrongdoing or that you were aware of before filing the claim.
What is D&O Insurance for nonprofits and what does it cover?
Directors and officers insurance is a type of liability insurance that protects the board members and officers against any legal expenses. The policy usually covers all legal costs if a board member or officer is sued for decisions made on the company’s behalf that resulted in a financial loss. This kind of insurance is often called management liability insurance.
When you get D&O insurance, you are protected against a variety of risks, including:
Accusations of mismanaged funds
If one of the board members is ever accused of making a poor investment judgment or abusing money that belongs to the organization, they may be subject to legal action. Even if the case is without merit, the non-profit will still need to pay for attorney fees and associated court expenses which can be expensive.
Failure to comply with established regulatory standards
If a charity organization or similar non-profit corporation fails to comply with regulatory requirements, the board of directors may be held responsible for this failure. Such a lack of compliance with established industry laws or standards may result in expensive lawsuits.
However, if the organization has D&O insurance, it may be able to pay the costs associated with employing an attorney and any other associated legal costs.
Non-compliance with official responsibilities
Even though officers and directors of non-profits have only a limited degree of control over a company’s performance, the burden of responsibility and guilt may fall squarely on their collective shoulders
if anything goes wrong.
If board members are sued for failing to perform their official obligations or for failing to comply with a legal requirement, the litigation costs might be prohibitively high. They might need the services of attorneys or incur other relevant charges. In such scenarios, your D&O coverage should assist in covering those costs.
Why do non-profits need D&O insurance?
Lawsuits are common these days, and sadly, non-profits tend to receive 50% more litigation than regular companies. Literally, anyone who feels that the organization’s board of directors has taken an improper or inappropriate action may bring a lawsuit against them.
The most prevalent case would be one in which the board of directors was accused of allowing an employee to be terminated in an unjustified manner. In most cases, the D&O insurance will provide coverage for these claims.
Employees are often the targets of D&O claims. People sue non-profits for different things, including wrongful termination, discrimination, harassment, and many other employee-related lawsuits.
When a civil lawsuit is brought against an organization, D&O insurance often protects individual board members and staff, volunteers, and the organization itself. This might help the organization attract better talents since their operations are covered. Some policies, however, vary from others because each policy is unique. To ensure that the company and the person are adequately protected, you should check with your broker.
As a result of the above, the exact amount of insurance required fluctuates depending on the circumstances.
Learn more at the why nonprofit organizations need to have D&O insurance
Best D&O insurance companies for nonprofits
Several insurance companies offer D&O insurance for small businesses and nonprofit organizations. It can be confusing to find a good carrier for your nonprofit. We have done the research and here are our recommendations for the top carriers for D&O insurance for nonprofits.
- Simply Business: Best for finding cheap coverage from reputable carriers
- CoverWallet: Best for comparing quotes
- Nationwide: Best for custom policies
- Smart Financial: Best brokerage firm if you prefer working with an experienced agent
- Travelers: Best for experience