The Importance of Directors and Officers Insurance for Nonprofits
A directors and officers insurance policy is vital for any nonprofit to have in place to protect its board members. Non-profit organizations are controlled and managed by two main parties: the directors and board members, who make primary decisions for the organization. And the management team hired by this board. All people working for a non-profit as salaried employees are free of any liability in the case of any claims. This is why the board members have to pay for any mistakes made by the organization. These members need a protective shield from legal cases to perform their duties without added stress.
This is where Directors and Officers Insurance becomes useful for nonprofit organizations. It covers the claims filed for the reasons mentioned below.
1. Governance Discrepancies
If the board members of a nonprofit organization committed a mistake regarding governance matters, Directors and officers insurance protects them financially from these consequences. Some of these governances board members either establish or update policies that involve the following matters:
- Organizational Principles – Board Members assist in establishing the organization’s mission, vision, and overall purpose. These principles guide your leadership team and working staff.
- Business Strategy – Established to provide goals for the overall business.
- Policy – Corporate rules outlining what is allowed and not allowed as part of the organization.
- Norms – Expectations of the organization that fall outside of strict rules.
- Controls – Hiring top executives to oversee your nonprofit organization’s success is critical. They report directly to the board based on what is expected of them. They also implement controls on their staff to ensure the organization’s overall success.
- Fiduciary Duties – Putting guidelines to protect money and assets into place, remembering to place your company stakeholder’s best interest first. An example would be hiring the right person for the job and paying an appropriate salary. Providing an excessive salary would clearly violate your board’s fiduciary duties.
- Accountability – Board members have a huge role in holding the management team accountable for the overall success and failures of the organization.
- Risk – Board members are responsible for safeguarding people and property. This can be accomplished through risk transfer mechanisms such as insurance for nonprofits and risk avoidance. It is crucial the board, with the assistance of an insurance broker, identify all potential risks related to an organization.
- Compliance – Board members must comply with local, state, and federal laws and regulations. Nonprofits must stay current on any changes that could affect their organization. When changes happen, it is critical to address these changes and ensure your management team and staff comply.
- Reputation – The success of any organization is based on having a superior reputation. It is vital organizations maintain a superior reputation throughout their communities.
As there are a lot of moving parts related to a nonprofit organization, any organization needs to have Directors and Officers Insurance in place. Most board members will require this coverage to be in place before accepting a position on the board.
2. Financial Claims
Any financial mishaps or miscalculations made by the organization are also covered under a directors and officers insurance policy. It includes the mishandling of donations, violating the employees’ financial rights, and mismanaging organizational funds.
3. Practice Claims
Any misconduct by the employees of a nonprofit can also result in a lawsuit or legal claim. Directors and Officers insurance policies help the organization recover from these legal complications without serious consequences.
Here is why a directors and officers insurance policy is essential for every nonprofit organization.
1. Frequency of Claims
A nonprofit organization is twice as likely to be victimized by legal claims than a private company. This is why church insurance brokers highly recommend nonprofits to invest in a directors and officers insurance policy.
2. The Scope of Claims
When a legal case is filed against a nonprofit, none of the employees, managers, board members, or even volunteers are safe from prosecution. So, a directors and officers insurance policy is helpful to each person associated with the organization.
3. The Value of Claims
Most of the legal fees and claims associated with lawsuits exceed the income of an average nonprofit. Without a directors and officers insurance policy, these payments can bankrupt an organization and destroy the efforts of its hard-working employees, administration, and volunteers.
Integrity Now Insurance can help a nonprofit prevent the financial consequences of legal cases and lawsuits. Our competent church liability insurance specialists can take any nonprofit out of turmoil and help regain its reputation within the community. Sign up for our D&O nonprofit liability insurance today and secure your organization’s future.