Property insurance is a must-have for nonprofits
From the standpoint of insurance coverage, the three core elements of any organization are people, places and things. To handle allegations of incompetence or wrongdoing by people, you need liability insurance. To protect places and things, you need property insurance.
“Places” and “things” are big categories. They include buildings, equipment, furniture, inventory, supplies and other materials. Property insurance will reimburse you for the cost of replacing or repairing these if they’re damaged or destroyed by events such as:
Remember that your nonprofit needs property insurance even if the organization doesn’t own its buildings. All the things inside those buildings are still vulnerable to unpredictable disasters. In fact, your leases and rental agreements might require your organization to carry property insurance.
Take an inventory
The first step in getting property insurance is carrying out an inventory of all the things that are used to get your organization’s work done.
Walk through all of the places where that work happens — offices, garages, warehouses, rented facilities and residences. List everything that you see. Add the stuff that’s tucked away in drawers, closets and other storage spaces. Then estimate what it would cost to replace each item.
Be sure to list digital equipment. This includes anything that has the capacity to store or transmit data, such as:
- Desktop and laptop computers
- “Landline” phones
- Mobile phones and tablets owned by the organization
- External hard drives
Next, broaden your definition of “things” to include data. Data can be difficult to inventory because it’s not tangible. It can also be damaged by events — such as power surges and outages — that don’t harm other property.
Think about all the things you’d have to replace after losing data. Include software — bought at a store or downloaded — and storage media such disks or tapes. Then consider what it would cost to restore lost data, including information about your finances, employees, programs, services and constituents.
Consider the types of coverage you need
When you have an accurate property inventory and estimate of replacement costs, you’re ready to meet with an insurance agent or broker. Find someone who specializes in working with nonprofits. One useful resource is the Nonprofits Insurance Alliance Group.
Nonprofits vary widely in their risks and needs for property insurance, and there are too many options to fully cover here. Among the options are:
- Building coverage for offices, meeting spaces, warehouses and other structures
- Business personal property (contents) coverage for office equipment, materials and furnishings
- Business income policies to cover revenue lost and expenses incurred after property damage
- Cash, funds and securities coverage to reimburse your organization for money that’s lost or stolen
- Coverage for accounts payable, valuable papers, signs and other valuable items not listed above
- Coverage for equipment breakdown
- Coverage for data processing equipment
Look for these clauses in your policies
Before you sign a property insurance policy and pay the first premium, understand exactly what you’re buying. Read the following sections of the contract carefully:
- What’s covered. Make sure that the key items from your property inventory are specifically included.
- What’s not covered. A standard policy might exclude a coverage that your organization needs. Avoid policies with a “failure to provide insurance” exclusion, which denies indemnity if you do not have enough coverage in place. “Enough” can be defined in vague or arbitrary ways.
- Replacement cost versus cash value. Property can be insured for replacement cost or for cash value (which accounts for depreciation). Look for any coinsurance clause that requires your organization to carry a specific amount of coverage. If your limits fall below the minimum, you might have to pay a penalty.
- Deductibles. You can often get lower premium payments by choosing a higher deductible. Just be sure that you have enough in an emergency fund to cover the deductible.
To get the protection your organization needs, you might need to amend a standard property insurance policy with endorsements. These are documents that add or subtract specific coverage — and often change your premium payments as well. An example is building ordinance coverage, which covers increases in construction costs due to changes in local building codes.
Risks for property will change as your organization grows and matures. Keep your coverage current. Review your nonprofit’s insurance whenever the organization buys new equipment, relocates or opens a new office.
Put risk management in place
Risk management is taking action to prevent property damage. For instance:
- Install and update sprinkler systems and fire alarms
- Get maintenance contracts for equipment and schedule annual checkups
- Back up data — and then back up those back-ups to the “cloud” and off-site storage areas
Managing risks can save you from headaches in the future — and it may lower your property insurance premiums as well.
Blue Avocado: A board member's guide to nonprofit insurance by Pamela Davis (2008)
Brett Cohrs: Property insurance for nonprofits (2013)
CIMA Volunteers Insurance: Insurance basics for nonprofit organizations (2012)