What insurance should you take out?Published: February 2017 | Last reviewed: February 2017
Looking for US-specific guidance? Read about liability insurance for U.S. nonprofits.
It's probably not top of mind when you're setting up as a charity, but researching and choosing the right insurance needs to be on your to-do list. A fundamental part of financial risk management, insurance helps reduce the financial impact of claims arising from accidents, injuries, losses or abuses that other risk-mitigation efforts simply don't catch.
"It's the trustees' responsibility to ensure their charity's assets are protected," says Mark Ingram, director of specialist charity and nonprofit insurer CaSE Insurance. "So, in addition to ensuring sound risk management controls are in place, this often involves sourcing and purchasing appropriate insurance."
The choice of insurance policies will vary from one charity to another. Consider the cost of taking out a policy relative to the potential cost of a claim when choosing whether a particular insurance is suitable for your charity.
Legally required charity insurance
If you have employees — even just one — employers' liability insurance is a legal requirement in the UK. (with a few exceptions, such as employees who are family members). In fact, you may be fined without it. This type of insurance covers claims made by employees for injuries or illnesses sustained on the job due to negligence, and protects you from potential litigation and the cost of compensation paid to employees in these cases.
Some specialist charity insurers provide cover for volunteers under employers' liability rather than under public liability. Covering volunteers under employers' liability means extra security for the volunteers, as they're owed a higher duty of care. Even if you don't have employees, you may still want to take out an employers' liability policy to cover your volunteers. The Charity Commission advises organisations to treat volunteers in the same way as they do their employees for insurance purposes.
If your organisation owns and/or operates vehicles on public roads, you must have motor insurance. If your staff or volunteers drive their own cars, the insurance responsibility falls with the driver — but you should check that their insurance covers such use. Most insurers don't charge extra to allow for volunteer driving, given the Association of British Insurers' volunteer driving motor insurance commitment.
Recommended charity insurance
Though not legally required, many nonprofits may need some or all of the following:
Public liability insurance
Public liability insurance covers you against claims made by members of the public. This can include accidents caused by negligence, such as a "slip and trip" incident in which a client or patron is injured at one of your sites or events, or damage to property during a fundraising event hosted at a donor's residence. This should also cover claims of abuse to a third party — although be aware that some insurers are silent on this issue.
Trustee indemnity insurance
Trustee indemnity insurance (commonly known as directors and officers insurance or D&O in the business world) covers your board of trustees and the organization against claims made about their errors and omissions due to negligence on the part of the trustees. For example, if a trustee makes a good faith error of judgement and the affected party sues your charity, trustee indemnity insurance will protect your charity. Equally, if the affected party sues the trustee directly, trustee indemnity insurance will protect the trustee.
Trustee indemnity insurance typically offers broad cover and is often more affordable than you might expect. It also offers important peace of mind, and many trustees (or potential trustees considering joining your organisation) will want to know they're protected.
You may also consider other cover, such as employment practices liability — which protects the organisation from claims made by employees for employment-related issues such as discrimination, termination or harassment.
A typical property or buildings insurance policy offers coverage for structures and facilities owned or leased by your nonprofit, including offices and event spaces. You'll also want a policy that covers the contents of these buildings or spaces — such as office equipment, computers and the data saved on those computers. It's important to select the correct sums when insuring your property: a claim could be reduced in the event of underinsurance.
Professional indemnity insurance
Professional indemnity insurance protects you from claims made related to the services you provide. If your organisation provides social services, professional services, counseling/advice or certain other types of support services, this is a sound strategy to protect you from the costs of potential professional errors or omissions.
Fidelity insurance protects your organisation from losses due to theft or fraud by an employee, volunteer or trustee. Fidelity insurance is particularly relevant if your organisation has large endowments or deals with expensive or valuable goods.
The kind of work you do will define any specialist insurance policies you need — for example, a medical malpractice policy if your provide health care services, specialist travel insurance if you send volunteers or staff to high-risk countries, or special events coverage if you host very large events. Cyber liability is another emerging area as organisations become increasingly aware of the risks of electronic hacking. However, cyber liability insurance can be relatively expensive, so it's worth checking if your existing policies cover for this.
Income protection insurance
Income protection insurance helps cushion the costs of extended sick leave required by someone in a vital, high-paying role. This would cover costs of the employee’s sick pay, but not other costs such as those incurred in recruiting a replacement. The average cost to the employer of such a policy is around £200 per employee per year, but this may be a sound investment given the potential financial burden of an extended absence.
How much coverage?
In the UK, £5 million in employers' liability cover from an authorised insurer is required by law if you have employees — and you must be able to provide evidence of this. It's common, however, to have £10 million in such cover. Other insurance indemnity levels depend on your particular circumstances. It's best to discuss these with an experienced nonprofit insurer or broker.
Choosing a charity insurance provider or a broker
To find a policy that suits you, look for specialist insurers who work with nonprofit clients. The Small Charities Coalition provides listings of some UK-based specialists. Also check with national organisations or umbrella bodies, which can sometimes offer specially agreed rates with selected insurers.
Specialist brokers can also offer advice and help you select the right amount of coverage at a competitive price. A good broker should represent your interests and anticipate the ways in which your needs for coverage will grow and change, as well as communicate regularly about the state of the insurance landscape — such as new laws or regulations. Keep in mind that brokers generally work for commission from insurance companies. By law, you're entitled to ask what they're being paid.
This article was developed with input from CaSE Insurance, a specialist insurance underwriter and risk management partner for charities, voluntary organisations and social enterprises.
CaSE Insurance: Do charities need insurance? (2016)
The Charity Commission: How to insure your charity (2013)
The Charity Commission: Charities and Insurance (CC49) (2012)
Blue Avocado: What should boards know about insurance brokers?