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D&O Insurance

How Much D&O Insurance Should A Nonprofit Have?

The Need For D&O Insurance in a Non-Profit Organization

Non-profit organizations, also known as non-business organizations, are legal entities operated for social benefit. The company does not run to make a profit for the brand. The primary aim of the organization is to bring social welfare. NGOs are prime examples of non-profit organizations. There are different functional domains in which the NPOs work. Hence, organizations need a steady risk management system and ensure optimal operability.  

D&O insurance policy in a nutshell

Before getting into the requirements of a non-profit organization, understand what D&O insurance is all about. The D&O policy or the Director and Officers’ liability insurance is a corporate policy to protect the personal assets of the high-ranked officials and directors in an organization or business. The insurance comes as a rescuer and financial backup when the supreme officers get legally charged with mismanagement allegations. The allegations can be brought by the employees of the organization, consumers, stakeholders, or colleagues of the same rank for the following reasons – 

  • Mismanagement of organization funds
  • Mismanagement of corporate intellectual property
  • Breach of duty that might bring monetary loss
  • Lack of corporate governance
  • Misconduct or malpractice, contradicting the professional duties and responsibilities

D&O policy for non-profit firms

D&O policies are essential for every business and organization. But, by reading the above, you may think a non-profit organization does not require such liability insurance. It is a misconception. Why? The D&O policy for the non-profit organizations safeguards the organization’s reputation and the directors if they get sued by the following – 

  • Vendors
  • Current or former employees of the NPO
  • Donors who contribute to the organization’s campaigns
  • Beneficiaries and other parties

The allegations for mismanagement of the non-profit organization can scandalize the brand and make an adverse impression on the donors who support the welfare cause. The directors have to seek legal assistance to defend their interests. The policy comes as financial support and meets the expense during the legal proceedings. The cost incurred during the legal course can be hard to meet, for which the directors and executive officials require the support of liability insurance. Non-profit organizations of all sizes need a liability policy to protect the officials who responsibly run the organization. 

Common insurance claims against non-profits

The directors of the non-profit organization make crucial decisions about the core functioning of the organization. The directors manage the funds gathered by the organization and develop strategies to run the company and pay the employees. Thus, the non-profit organization must protect the valuable resources of the company. The D&O policy can help them by covering them in the following ways –

  • Reimbursement of legal expense
  • Providing defense charges 
  • Monetary settlements, penalties

The purpose of D&O policy in a non-profit organization

In most non-profit organizations, the directors or high-ranked officials do not have prior experience in the service. Unlike the business enterprises where there are multiple requirements and eligibility norms related to the high-ranked posts, there are no such defined regulations. Most serving directors are doing the job as part of their passion to do something benevolent for society and people. Hence, performing the general duties and responsibilities can be difficult at times.

As a consequence, there may be allegations against them for the wrongful acts. The policy helps in such times. The lack of experience can bring greater risks and thus cause harm to the organization’s reputation. The D&O policy mitigates the risks and helps in the efficient running of the company and the protection of the personal assets of the directors. 

How much can it cost for a non-profit organization?

If you run a non-profit organization, you must be aware of the premium price for the D&O insurance policy. Everyone knows that the premium charges of insurance depend on the coverage you select. In the case of D&O liability insurance, the price can also vary based on limits and deductibles. If the limit of the insurance is high, the premium cost will be naturally on the higher side. However, if you want to get an average number, it is best to consult an insurance broker and find out the exact cost of purchasing the insurance. 

In India, the average premium charge for the D&O liability insurance for non-profit organizations is an annual premium cost of INR 60,000. The average cost mentioned here refers to a limit of INR 5 crore for overall coverage. The coverage will be for all directors and officers of the company including both executive and non-executive directors of the company.  The quoted price can vary depending on the insurance company you have chosen and coverage extensiveness. Read the following to know the coverage factors influencing the price. 

Coverage aspects for non-profits

The D&O policy will cover the lawsuit expenditure, caused due to the mismanagement and mishandling of duties by the supreme officials. The following are the most common coverage aspects that most non-profit organizations encounter – 

  1. Mismanagement of funds: If the director or board member is accused of making an unfruitful investment decision or misusing the company’s funds, legal action can be taken against them. Even if the charges are baseless, they can bring ill-reputation to the non-profit organization. The D&O policy provides financial support by meeting the expenses for attorney’s fees and other legal proceedings, without hampering the personal asset of the director of the funds of the company. 
  1. An issue with the regulatory norms: For example, the non-profit organization is an animal shelter that works for stray dogs in the city. If the organization fails to meet the legal rules attached to the working domain, the director can be charged with strict allegations. In such times, the D&O takes the blame and combats the charges through the legal course. D&O pays the charges incurred and helps in eliminating the financial worries. 
  1. Mismanagement of duties: There are multiple professional duties that the directors and officers in non-profit organizations have to execute. Any mismanagement or malpractice can cost hugely and the donors/beneficiaries blame the supreme executives. The policy helps in relieving them from the legal charges and meets the associated cost incurred for defending their side. 

The benefit of D&O policy in non-profit – Getting a competent team

Offering such a liability policy to the directors and officers in the non-profit organization not only mitigates financial risks but also helps in other ways. It brings competent and able resources to the team. D&O policy helps in offering security to the high-ranked officials, for which, getting an able leader on board gets easy. Thus, non-profit organizations of the following types should always utilize the benefits  of having the D&O policy – 

  • Animal shelter
  • Charitable organization
  • Religious organization 
  • Community center
  • Counseling centers

Consult with an expert to know better

Now you know how the D&O policy is advantageous for the running of a non-profit organization, the following step is to purchase it. Having an expert to help you with the process is convenient. Unlike other policies where you can look upon the internet to understand the plan coverage features, the D&O policy requires expert supervision for selection. 

Sort the requirements with PlanCover

PlanCover, the best insurance broker in the country, brings you the best D&O policy for non-profit organizations. With their team, explore the many benefits of the policy coverage and select accordingly. Connect to their team and find the best solution. 

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