Skip to content
January 19, 2011 / Brett Cohrs

Nonprofit Insurance: What Coverage Do I Need (Part 2)

A few days ago I wrote this post as a response to one of the most common questions asked of property and casualty insurance agents: Which coverages do I need?

I’d like to follow that with a corollary question: How much coverage do I need?

After you select the coverages to address your organization’s exposures, your next decision is how much limit you will purchase.

My suggestions: Enough to put your organization’s stuff back in place and enough to protect the stuff your organization owns (and the stuff your board members and key employees and volunteers own).

Let’s look at two of the base policies for any commercial insurance package to illustrate my suggestions on this question.

Property Insurance for your Building

The wrong question to ask: “How much is my building worth?”  These days, as we’re all painfully aware, property values are way low. Buildings are typically worth much less than it would cost to rebuild them.

Your limit should be enough to rebuild your building in the event of a loss. More importantly, it should be enough to repair a partial lost without any penalties.

I could really take you down a rabbit hole of insurance-ese here, but I’ll refrain. Suffice it to say this: YOU DO NOT WANT TO UNDERINSURE YOUR MOST IMPORTANT OPERATIONAL ASSET IN ORDER TO SAVE A FEW DOLLARS.

If you are underinsured from a replacement cost perspective, you will get penalized on a partial loss.  That’s the only way you won’t be completely angry with your insurance company or your agent for something you failed to do in the event of a loss.

If your whole builiding burns down, perhaps a lower limit would give you enough to build back a lighter version. On the other hand, if you just have a 25% loss due to a windstorm and are underinsured, you’ll only get partial payment for your loss. That will not make you happy.

Ask your agent or track down a replacement cost estimate on your structure. Chances are if you’re only insured $50 a square foot, you’re not insured high enough.

The main objective when selecting property limits is to have the funds available to put all your stuff back in place as quickly as possible.

General Liability Insurance for your Operations

These comments apply to ANY liability policy you have in place (auto, professional, directors and officers, etc.).

The primary basis for your limit is not the likelihood of the size of your claim. If you read my previous post, you cannot predict that type of thing.

What you do know is the value of your assets. Therefore, select a limit that will protect as much of your assets as possible. To put it another way, if someone sues you, how much do you have at stake?

Even if your organization doesn’t have much more than a laptop, a desk, and $1,200 in the bank, you need to consider future earnings and the personal assets of your board members and employees. A lawsuit probably will not only name the organization, but any key people involved. Heck, it might name the whole board.

Most general liability policies come with a standard $1,000,000 limit. I’d suggest considering an umbrella to give you additional limit. Check your assets and your potential earnings.

Factor in the nature of your organization, also. That variable is important, too. If you work with youth in the juvenile justice system, you might need have higher limits than if you provide rent assistance and food pantry items on a referral basis.

The same principle applies across the board to your other liability policies: Check the assets at stake, then your operational exposures, and decide.

Disclaimer: Please make sure to discuss these items with your insurance professional as each situation has its own circumstances.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: