Why do I need insurance?

What types of insurance and how much coverage to purchase for your CHDO are important management decisions. The business environment is constantly changing, and your managers must take the time to understand the risks your organization faces and choose how to manage them. This chapter briefly explains the types of insurance that are available, suggests ways to minimize your risk, discusses insurance companies, and gives a few pointers on how to administer your insurance program.

Not-for-profit organizations, like any other legal entity, need insurance coverage. While your organization needs to have insurance for a variety of possible occurrences, it should also take the time to plan and implement procedures that will reduce the chance that it will need to take advantage of that insurance.  For example, your CHDO should:

·                      Carry workers’ compensation insurance, but at the same time, develop an employee safety program, examine your workplace for hazards, and take the necessary steps to eliminate those hazards.

·                      Carry directors and officers (“D & O”) liability coverage, but at the same time, develop a board of directors and managers who carry out their duties responsibly.

·                      Bond your employees and board members, but at the same time, develop financial controls that minimize the chance of losing  money and the ability of employees or board members to steal from the organization.

Insurance is complicated. Use this chapter as an educational starting point. Develop a relationship with an insurance agent or broker who will take the time to educate you and help you design and implement systems and procedures that will reduce the likelihood that your organization will file a claim or defend a lawsuit.

Does your CHDO currently have liability insurance? Besides being complicated, insurance is also costly. Often, by working with one agent for all your CHDO’s insurance needs, you will be able to get package discounts on property and liability insurance. After a year or two with no claims, your good track record will translate into lower premiums or slower rate increases. For example, state unemployment insurance drops from 2.7% of payroll to 0.35% of payroll if you have no claims for 18 months. That is an 87% decrease!

Your board and staff must exercise the level of care a reasonable person would exercise to reduce the likelihood of insurance claims. As the saying goes, an ounce of prevention is worth a pound of cure.