6 Considerations Before Joining a Nonprofit Board | Travelers Insurance (2024)

FAQs

What is non-profit board insurance? ›

Nonprofit directors and officers liability coverage not only includes coverages for the defense costs, settlements and judgments associated with claims against nonprofit organizations but also helps protect the personal assets of the organization's directors and board members.

Understanding Board Responsibilities

They also have a duty to act for the benefit of others in connection with their undertakings for the nonprofit organization. Specifically, Directors can be held personally liable based on three fiduciary duties: the duty of care, the duty of loyalty, and the duty of obedience.

Many nonprofits start with a Business Owner's Policy (BOP). It includes three essential coverages that can help protect your nonprofit organization, such as: General liability insurance to help cover claims that your nonprofit caused bodily injury or property damage.

D&O insurance reimburses the defense costs incurred by board members, managers, and employees in defending against claims made by shareholders or third parties for alleged wrongdoing. D&O insurance also covers monetary damages, settlements, and awards resulting from such claims.

A general liability insurance policy protects nonprofits from injury claims, advertising claims, and property damage claims. It will also cover defense costs, including court costs, witness fees, and attorney fees, in addition to judgment or settlement monies.

As a board member, you could be held personally liable for the decisions and actions of the board, even in the case of impropriety on the part of other members.

Nearly two out of three nonprofits reported a Directors & Officers liability claim within the past 10 years. These lawsuits can be brought by donors, vendors, competitors, employees, government regulators and others, and they are not limited to suing the nonprofit organization.

Nonprofit board members have the legal responsibility to meet the duty of care, the duty of loyalty, and the duty of obedience.

Determine the Organization's Mission and Purpose

The board's fundamental responsibility is to satisfy itself that everyone connected directly or indirectly with the organization understands its reasons for existing. This usually takes the form of a written mission statement.

“The board, funders, and other stakeholders of a nonprofit should not be paid directly based on revenue. This is in stark contrast to the way for-profit shareholders and investors are paid. ” But this does not mean that compensating board members for some things is illegal.

Do nonprofits need D&O insurance? ›

A nonprofit organization should buy D&O insurance at the bare minimum, and then may add other coverages depending on their size and scope of operation. It's no secret that many nonprofits are forced to operate on scarce resources, and they tend to focus more on their operations than their risk management.

What must a nonprofit health insurance organization do if at the end of the budget year, they have made a profit? Put the profit back into services for those covered under their insurance.

A participating life insurance policy, also referred to as a par policy, allows the policyholder to participate in the profits of the life insurance company.

Insufficient experience or knowledge could lead to significant complaints or claims against the nonprofit. With the average claim against non-profit directors and officers costing around $35,000 to settle, it is necessary for non-profit organizations of all sizes to secure D&O insurance.

Free on Board (FOB) indicates when the ownership of goods transfers from buyer to seller and who is liable for goods damaged or destroyed during shipping. FOB Origin means the buyer assumes all risk once the seller ships the product.

The individuals who make up your board of directors are responsible for making key decisions that address the organization's mission, strategy, and goals. They aim to address the public's interest through the organization's work and act as the legal voice for the organization.

There are two main types of compensation in nonprofits. The first is salary, which is some form regular payment that you provide to your employees or board. The second is expense reimbursem*nt, which is when you reimburse your board for the expenses they incur while performing their roles.