What is Nonprofit Liability Insurance?

When you started your nonprofit, it was likely to make a difference in the world. You’re protecting or helping others, but who’s going to protect and help you? Nonprofit liability insurance is security for your organization so you can continue to pursue your mission.

While you may be thinking, “We’re a small organization, we won’t be sued,” this is a common misconception that can leave your nonprofit fending for itself in a lawsuit. Liability insurance is a crucial piece of responsible nonprofit management. 

Here’s everything you need to know about nonprofit liability insurance before finding a provider. 

What is nonprofit liability insurance?

Nonprofit liability insurance is protection from legal consequences across a wide range of liabilities. It protects nonprofit organizations from legal claims and financial losses and is an essential tool for anyone trying to run a nonprofit. 

Some clients may even require proof of insurance before working with you. For example, if you want to host an event, the library where you want to host the event may require you to provide proof of insurance first. In which case, you’ll have to produce a certificate of insurance (COI). 

Does a nonprofit need liability insurance?

The short answer is yes, every nonprofit needs liability insurance. The long answer is, yes, every nonprofit needs liability insurance, but it’s up to each nonprofit to determine its risks and the amount of coverage needed. 

Often, funders, venues, and contract agreements will require you to have insurance as a condition of working with them, so it’s a good idea to find insurance now rather than scramble later. 

Since nonprofit is a wide category, here are some groups that likely need some kind of nonprofit liability insurance:

• Charitable groups
• Healthcare providers
• Advocacy groups
• Religious organizations
• Arts and culture institutions
• Educational nonprofits 
• Business organizations or associations 
• Social groups
• Summer camps
• Labor or agricultural organizations
• Trade associations
• Political groups

How much does general liability insurance cost for a nonprofit?

On average, small to mid sized nonprofits pay $45 to $60 per month for nonprofit general liability insurance. Grants and donor support can sometimes help offset this cost.

Here are some of the things that can impact your monthly payment:

• Type of coverage
• Location 
• Claims history
• Size or organization
• Nature of work
• Number of volunteers or employees

Depending on the variables mentioned above, your rate could be higher. Naturally, larger and more complex organizations need a wider range of coverage. Plus, organizations that do ‘riskier’ activities will also need more coverage. 

Types of Liability Insurance Nonprofits Should Consider

General Liability

Fundamental coverage for legal claims and financial setbacks. This covers customer injury, property damage, and advertising injury. 

Directors and Officers (D&O) 

Coverage for management decisions that board directors and officers make. Protects the organization and board members against harassment, discrimination, and wrongful termination.

Professional Liability (Errors and Omissions)

Protects your organization against negligence or errors when it comes to your professional services.  

Cyber Liability

Protects your business from data breaches and cyber attacks which can damage your organization’s reputation. Increasingly important with donor databases and online systems. 

Employment Practices Liability

Protects against claims of sexual harassment, discrimination, wrongful termination, negligent evaluations, infliction of employee duress and other such claims. Sometimes you can add this to your D&O coverage. 

Workers Compensation

Covers any injuries and illnesses that impact your employees when working. 

Volunteer Accident Insurance

Optional coverage to protect volunteers. 

Auto Liability

Protects vehicles used by the organization, essential for transporting everything from supplies to volunteers. Only needed if your organization owns or uses vehicles. 

Business Owners Policy

Covers commercial buildings and personal property owned by the nonprofit. 

Professional Liability

Also referred to as errors and omissions insurance, protects claims made as a result of board members action or inactions. Needed for nonprofits offering advice or services. 

How much coverage does your nonprofit need?

Insurance is not one-size-fits-all. How much insurance you need depends on a wide range of variables like:

• Size of the organization
• Number of employees and volunteers
• Type of work or services offered
• Events, physical locations, or client-facing work

Given how custom and specific each insurance plan is to the nonprofit it’s covering, it’s important to work with a broker who has experience covering nonprofit-specific risks. 

Common Risks Faced by Nonprofits

Examples of potential lawsuits or claims:

• A visitor trips at an event and sues for medical costs.
• A disgruntled former employee sues for wrongful termination.
• A donor or client accuses the organization of mismanaging funds.
• A data breach exposes confidential information.
• A staff member commits fraud, leading to financial or legal consequences.
• An employee embezzles funds, resulting in a loss of donor trust.
• A team member or board decision leads to a discrimination claim.
• A service or program error results in a negligence lawsuit.

Real World Examples:

In 1992, William Aramony resigned from his position as the president and CEO of United Way of America due to allegations of siphoned money laundering. He was convicted of 25 felony counts and sentenced to seven years in prison for diverting $1.2 million of the charity’s money. 

In 2023, the EEOC sued a nonprofit for disability discrimination, claiming the organization violated the Americans with Disabilities Act by failing to provide reasonable accommodations to employees who needed reasonable hearing accommodations. 

How often do nonprofit organizations get sued?

Over 99% of nonprofits will not likely be sued for anything. That said, according to a survey done by Charitable Allies, 63% of nonprofits experienced a Directors and Officers liability claim in the last 10 years. 

It’s a good idea to get at least some coverage depending on your nonprofit’s unique risks and circumstances. 

How to Choose the Right Insurance Provider

Nonprofits have a unique set of variables that impact how much and what types of liability insurance they need. It’s important to pick the right insurance provider to give you the coverage you need, without paying for over coverage. 

Here are some tips to help you pick the right provider:

1. Look for insurers with nonprofit experience
2. Ask for references or client stories
3. Compare quotes and coverage details (beyond premiums). 

The perfect provider is reputable, experienced, and covers all your risks within your budget. To determine if they’re the right provider for you, ask some of the following questions:

• What’s excluded from this plan, and won’t be covered?
• How likely is (whatever won’t be covered) to happen?
• Who is considered insured on this plan? 
• Are defense costs included?
• How much is the deductible? 
• What conditions are important to note in your plan?

Make sure to speak with a licensed insurance agent to make sure you know what is and isn’t covered.

What happens without insurance?

At best, forgoing insurance may keep your organization from partnering with other organizations that can help champion your mission and grow your nonprofit. Many organizations require proof of insurance in order to work together. Not having insurance could limit your opportunities for impact and fundraising. 

Also, you may not meet the prerequisites for certain grants, limiting the diversification of funding opportunities. 

At worst, a claim could cost your organization hundreds to millions of dollars, which you may or may not have. A large enough case can also tarnish your organization’s reputation and leave you unable to operate. 

Grow Your Nonprofit (Safely)

Your nonprofit exists to serve others, but you can’t do that if you’re tied up in legal battles or scrambling to cover unexpected costs. Liability insurance ensures your mission isn’t derailed by a single accident or accusation. 

Insurance gives you the freedom to focus on what really matters: creating change, supporting your community, and making a difference. Think of insurance not as an expense, but as a foundation for long-term resilience and credibility.

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