March 2, 2017

A Word About Board Insurance

Also referred to as Directors and Officers Liability Insurance, board insurance is a worthwhile expense to consider. According to the Nonprofits Insurance Alliance Group (also a 501(c)(3) nonprofit organization), about 1 out of 100 nonprofits will file a claim each year with an average settlement amount of $28,000. The D&O Liability Insurance is meant to safeguard the nonprofit against claims of willful misconduct on the part of the board or the staff.

While each nonprofit will have to evaluate for themselves if this is an investment worth making, I do encourage volunteer board members to ask if an organization has D&O Liability Insurance before committing to serve on their board of directors. Because the board is ultimately responsible for the sound fiscal management and operation of the nonprofit they oversee, a significant claim against the organization could potentially result in a personal liability claim against an individual board member. For example, if the nonprofit with approval from its board of directors signs a multi-year lease for their new facility but fails to make payments, the owner of the property may try to recoup the losses from the personal assets of board members.

While I don’t want to discourage anyone from taking on a leadership role with a nonprofit, I do recommend asking a lot of questions before making the commitment to serve in that kind of capacity. Ask for a copy of the balance sheet. Study the profit and loss statement. Inquire about assets, income projections, and anticipated expenses. Does the organization have a written list of responsibilities and expectations for members of their board? Ask about board insurance. If a nonprofit does not carry D&O Liability Insurance, that does not mean you should automatically turn down their request serve on their board, but it’s best to make the commitment with a full understanding of what risks and responsibilities you might be taking on.

Serving on the board of a nonprofit can be fun and fulfilling. The experience will be far more rewarding if you can make that commitment with an understanding of what your expectations are of the organization, and what the organization expects of you.

About Marc Huber

Marc Huber is a fundraising professional with over seventeen years of experience, including strategic messaging, board development, annual giving, capital campaigns, and volunteer consultation and training. He's also the author of The Fundraising Co-Pilot.

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