How Much D&O Insurance Does a Nonprofit Need?
Most small nonprofits and churches start with a $1 million directors and officers (D&O) limit. Organizations with employees, significant assets or programs that affect other people’s money often need more. The right limit depends on how much a lawsuit against your board could realistically cost to defend and settle.
What D&O Insurance Covers
D&O covers lawsuits over decisions made by your board and officers, such as claims of mismanaged funds, breach of fiduciary duty, conflicts of interest or failure to follow regulations. Most nonprofit D&O policies have three parts:
- Side A protects individual directors and officers when the organization can’t indemnify them.
- Side B reimburses the organization when it does indemnify them.
- Side C (entity coverage) protects the organization itself when it’s named in the suit.
Nonprofit D&O policies often include employment practices liability (EPL) as well.
Five Questions That Set Your Limit
- Do you have employees? Employment claims (wrongful termination, discrimination, harassment) are the most common D&O claims for nonprofits. In one industry survey, 67% of claims under nonprofit D&O policies were employment-related.
- Does EPL share the D&O limit? If both draw from one limit, a single employment claim can use up the protection your board needs for everything else.
- Are defense costs inside or outside the limit? Legal fees are a large share of D&O losses. When defense costs sit inside the limit, every dollar spent on lawyers reduces what’s left for a settlement.
- How much money flows through your decisions? Endowments, building campaigns, grants and investment funds raise the stakes of a board decision.
- Would one claim be survivable without coverage? Compare the limit to your annual budget and reserves. A limit that covers a realistic worst case keeps one lawsuit from threatening the ministry.
What D&O Costs
For small organizations, D&O is usually one of the less expensive policies. Churches and religious organizations that request quotes through Insureon pay a median of $854 a year. Premiums rise with board size, number of employees, revenue, claims history and the limit you choose. A higher deductible lowers the premium.
How D&O Policies Are Written
D&O is written on a claims-made basis: it covers claims first made while the policy is in force. If you switch carriers or let coverage lapse, ask about prior-acts coverage so earlier board decisions stay covered. Policies typically exclude fines, penalties, taxes and amounts owed under a contract.
Get the Right Limit
An independent broker can compare limits, defense-cost terms and EPL options across carriers. Learn more about directors and officers insurance for churches, read Nonprofit Board Member Liability: A D&O Guide, or see examples of nonprofit D&O claims.
