Starting a nonprofit organization gives you the chance to give back to your community. But like any other business, your nonprofit can leave you vulnerable to claims and lawsuits from people and businesses who are harmed by your actions or inaction. For that reason, you need to have the right type of insurance to protect yourself from these claims.
While no two nonprofit organizations are exactly the same, there are certain types of insurance that most have in common. For example, most have general liability insurance and directors & officers insurance (D&O) at the very least. If you are unsure about which coverages your nonprofit needs, check with your local insurance broker or agent.
A 501(c)(3) nonprofit must be organized as a corporation and file articles of incorporation with the state. You can do this yourself or hire a professional service to handle it for you. If you want to DIY, there are several online resources available for free or for a small fee. LegalZoom, for instance, offers a 501(c)(3) application service for about $595.
Once you’ve formed your nonprofit, you’ll need to get a few other things in place before applying for tax-exempt status. Getting a name for your organization is important, and you should always do a search with your Secretary of State’s corporation office to make sure the name you want is available. You can also check availability through CorpNet, which is a free online service.
Then you need to choose a Board of Directors who will help with the incorporation and paperwork. Some states require that you list your Board members in your incorporation documents. Even if your state doesn’t, recruiting a Board before incorporating can be very helpful when you’re in the early stages of creating your nonprofit.
After you have a Board in place, your nonprofit must be legally registered with the state. Again, this is usually a simple process and requires you to fill out a short form. Once you’re registered, you can then apply for a federal tax-exemption through the IRS.
Whether or not you have a 501(c)(3), all nonprofits need insurance to safeguard their assets and staff from potential lawsuits. These policies can cover everything from a fire that damages the building to data breaches that leak donor information. It is more important than ever for nonprofits to have the right insurance in place.
For property insurance, your nonprofit should get a commercial package policy that includes general liability, crime and property coverages all in one. This is often more cost-effective than purchasing these coverages separately. It’s also a good idea to add cyber liability coverage for your nonprofit as data breaches are on the rise. This protects you if an employee or volunteer’s personal phone or device is lost and contains sensitive data. It could also provide protection in case an outside computer is damaged. Nonprofits that own or lease a building should consider commercial property insurance for their furniture, equipment and inventory. does a 501c3 need insurance