General Liability (GL) InsuranceDirectors & Officers (D&O) InsuranceEmployment Practices (EPLI) InsuranceCrime InsuranceCyber Liability Insurance
What Types of Insurance Do Non-Profit Foundations Need?
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8 minute read
As a non-profit foundation leader, your primary goal is making a positive impact. But have you considered what might happen if an unexpected lawsuit or financial loss threatened the organization? With significant funds under management and regular interactions with donors, grantees, and the public, foundations face unique risks that require specialized protection.
While your organization focuses on making a positive impact, having the right insurance coverage ensures that one incident doesn't derail years of good work. The good news? Insurance for foundations is typically affordable and effectively addresses your most significant risks.
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Non-Profit General Liability Insurance
General Liability insurance serves as your foundation's first line of defense, covering bodily injury or property damage your organization might cause to others. This protection becomes particularly valuable during:
- Fundraising events where attendees could be injured
- Board meetings at physical locations
- Community outreach activities
- Interactions with donors or potential grantees
Real-World Scenario: A donor visiting your foundation's office for a meeting slips on a wet floor, breaking their hip. General liability coverage would help pay for their medical expenses and potential legal costs if they decided to sue.
Critical Add-On: Hired & Non-Owned Auto Coverage
One of the most overlooked risks for foundations comes from transportation. When board members or volunteers use personal vehicles for foundation business (like depositing donations or traveling to events), your organization could be held liable for accidents.
Consider this: A volunteer driving to the bank to deposit foundation funds causes a serious accident. Because your foundation has substantial assets, you become the primary target in the lawsuit rather than the volunteer with limited personal auto coverage.
Hired & non-owned auto coverage fills this gap, protecting your foundation from potentially devastating financial consequences. For foundations with significant assets, this endorsement is not optional—it's essential. It also usually costs less than $200 per year for most foundations.
Directors & Officers Insurance
Your board members dedicate their time and expertise to guide your foundation's important work. Directors & Officers (D&O) Insurance protects these individuals—and your organization—from allegations of mismanagement, improper decision-making, or breach of fiduciary duty.
Without D&O coverage, board members' personal assets could be at risk in case of:
- Disputes over grant allocation decisions
- Claims of fund mismanagement
- Allegations of conflicts of interest
- Challenges to investment strategies
Real-World Scenario: A rejected grant applicant files a lawsuit claiming your foundation's selection process was biased and violated your stated mission. D&O insurance would cover legal defense costs and potential settlements for both the organization and individual board members.
Many foundations find that D&O insurance is essential for recruiting and retaining qualified board members who understand the personal risks involved in foundation governance.
Employment Practices Liability Insurance
Employment Practices Liability Insurance (EPLI) is typically used to protect organizations against employment lawsuits. That being said, it is still valuable even for foundations with few or no employees. Here's why:
With "third-party" coverage, EPLI protects your foundation against claims of discrimination in your grant-making process. For example, if an organization claims they were denied funding due to religious or racial bias, EPLI would cover your defense costs.
For foundations with staff, EPLI also provides protection against claims of:
- Wrongful termination
- Harassment
- Discrimination
- Retaliation
- Failure to promote
Recommended Coverage: For foundations without employees, a modest policy with third-party coverage is extremely cost-effective. Organizations with staff should consider limits of $1 million or more.
Crime Insurance
As stewards of donated funds, foundations face unique financial risks. Crime Insurance provides critical protection against:
- Embezzlement by staff or volunteers
- Theft of funds
- Forgery
- Wire transfer fraud
- Social engineering scams
Most foundation leaders believe their financial controls are sufficient until they discover otherwise. According to the Association of Certified Fraud Examiners, the median loss from non-profit occupational fraud is $76,000, with many cases involving trusted individuals within the organization.
Real-World Scenario: A foundation's treasurer, facing personal financial difficulties, gradually embezzles $200,000 over three years by manipulating financial reports. Crime insurance would reimburse the foundation for these losses, allowing it to continue its mission without interruption.
Recommended Coverage: Coverage limits should align with your foundation's financial exposure, with special attention to wire transfer fraud coverage given the rise in sophisticated social engineering attacks.
Cyber Insurance
Modern foundations rely heavily on technology for everything from donor management to grant processing. Cyber Insurance provides essential protection against:
- Data breaches exposing sensitive information
- Ransomware attacks
- Social engineering fraud
- Business interruption due to system failures
- Costs of notifying affected parties after a breach
According to Nonprofit Tech For Good reports, 27% of nonprofits worldwide have been victim to cyber attacks and cybercrime. Cybercriminals view nonprofits as vulnerable and data-rich targets.
Real-World Scenario: A foundation's email system is compromised, allowing hackers to send convincing wire transfer instructions that appear to come from the executive director. The foundation loses $75,000 before discovering the fraud. Cyber insurance would cover this loss and help implement better security measures.
Cost Considerations
Insurance costs for foundations vary based on:
- Asset size
- Annual grant distributions
- Number of employees
- Geographic location
- Claims history
However, compared to the potential financial impact of an uninsured claim, foundation insurance is remarkably affordable. Many foundations can secure comprehensive coverage for all the policies mentioned for a couple thousand dollars depending on the organization size and the mission.
Taking Action to Protect Your Foundation
The right insurance program provides more than just financial protection—it gives your foundation the confidence to pursue its mission without fear of unexpected setbacks.
We recommend working with an insurance advisor who specializes in nonprofit organizations and can tailor coverage to your foundation's unique needs. By securing appropriate coverage now, you're not just protecting assets—you're safeguarding your ability to create positive change for years to come.
Coverages Referenced In This Article
Keep reading to learn more about the coverages referenced in this article.
About The Author: Austin Landes, CIC
Austin is an experienced Commercial Risk Advisor specializing in and leading LandesBlosch's design professional, real estate, and construction teams.