Directors Insurance Not-for-Profits: The People Behind the Mission
Management of a not for profit organisation is not necessarily about delivering programs or conducting community activities. A lot goes on behind the scenes which includes decision making on budgets, policies, partnerships and at other times, tough decisions regarding priorities. These decisions are made by a lot of people, such as the directors, board members, and trustees, which puts a lot of responsibility on them.
However, what can we do when we get the decision wrong even when it was made in good faith? Does that mean that a personal liability may arise because of an innocent error or mere negligence? The answer is yes. And that is why directors insurance not for profit is important.
Why Directors Insurance is a Good Idea.
Most of the board members enter the not-for-profits with passion. They do not want to get into legal issues, they want to assist. However the law does not make the difference between negligently and with good intentions made mistakes.
Directors can be held personally liable in the event of a policy decision in case of a financial wrong, a mismanaged contract, or an injured volunteer as a result of a policy decision. It is even expensive to defend themselves in a court.
Directors insurance meets the expenses of the defense of the claims and in certain situations, paying settlements. It also allows your board to make decisions without having to be incessantly concerned about financial risk to yourself.
Real-World Examples
Take an example of a local charity organization that organizes fundraising activities. The board agrees to purchase new equipment on a big scale with the expectation that the event would generate funds to cover the purchase. Regrettably, there is a shortage in the sales of tickets. One of the suppliers threatens to sue. In the absence of directors insurance, the board might be kept personally liable over the debt.
Or consider a volunteer program and the person becomes injured in the course of the activity. In case a board member is accused of not being attentive in overseeing the program, lawsuits may cost thousands of dollars in defense. The directors insurance intervenes to pay the costs to assist in securing personal assets.
Who Needs It?
Directors insurance is suitable should there be a governing body in your organisation, be it a small community-based group or a larger charity. Potential targets of a claim made in regards to the decision or omissions include trustees, board members and senior managers.
Even in the case of an organisation that operates entirely on the basis of volunteers, there is still a chance. Claims may be made by volunteers and members of the public, and occasionally it is the case. With insurance, the leaders need not be personally subject to financial implications.
How It Works
The insurance of directors usually includes:
- Legal expenses to defend director/board of member claims.
- The settlement or the damages that are granted in breach of duty, mismanagement, or negligence.
- Allegations regarding employment relations, such as unjust dismissal or discrimination (depending on the policy)
It should be mentioned that it does not normally include intentional illegal acts and fraud. The insurance exists to cover honest mistakes and accidental errors, the types of things that do occur in any organisation.
Choosing the Right Policy
The not-for-profit organisations are different in size, activities and risk. This implies that there is no standardized policy.
In selecting cover, note:
- The magnitude and the extent of your business.
- The population of the governance positions
- The type of decisions that your board is regularly making.
- How much you would be liable to in case a claim is made.
The right insurance broker can assist in aligning your needs in the organisation to the appropriate level of protection.
Peace of Mind for Everyone
Directors insurance is not only a safety net to the board member. It is also good to the organisation itself.
Directors can make decisions with confidence as long as they are assured that they are not liable on their personal accounts. Such confidence brings about good governance, effective programs and more emphasis on accomplishment of the mission of your organisation.
Good people may not volunteer to become leaders without a good cover. They are able to share their knowledge with insurance without worrying of risking their own money all the time.
Every not-for-profit is supported by directors and board members. The actions they make influence the organisation and the people and communities it serves. Insuring them accordingly would mean that risk does not mar passion and commitment.
ACS Financial offers convenient, dependable insurance to directors and board members of not-for-profits organisations that require unique protection. They realise the difficulties of heading the community parties and assist in ensuring that your leaders are insured, as your organisation aims at making a difference. Get to know more at ACS Financial’s Not For Profit Insurance.
