6 Reasons to Secure D&O Liability Insurance for Nonprofits
When most people think about insurance for a nonprofit, they think about general liability or property coverage. But the biggest risks aren’t always physical. They’re personal. Directors and Officers (D&O) Liability Insurance protects your nonprofit’s leadership—board members, executives, and officers—from personal legal exposure if someone challenges a decision they made while acting on behalf of the organization. That might sound like a worst-case scenario, but in today’s regulatory and donor-driven environment, it’s a lot more common than most nonprofits realize.
At KBI Benefits, we help nonprofit organizations proactively manage the risks they face every day. And when it comes to D&O insurance, the question isn’t whether you need it—it’s whether you can afford not to have it. Here are six key reasons every nonprofit should carry D&O coverage—and how the right policy can protect your leadership, your finances, and your future.
1. Board Members Can Be Personally Liable
Nonprofit board members take on legal and fiduciary responsibilities the moment they step into leadership. That includes duties around financial oversight, regulatory compliance, conflict-of-interest management, and the strategic direction of the organization.
If someone believes those responsibilities were violated—through perceived negligence, mismanagement, or misuse of funds—they can sue individual board members. Even if the claims are baseless, they still require time, resources, and money to fight. D&O coverage provides a layer of personal protection for decision-makers, helping to ensure that one legal issue doesn’t jeopardize their personal assets or their professional reputations.
2. Legal Costs Are Rising—Even If You Win
Defending against a lawsuit, even a frivolous one, can cost tens of thousands of dollars. Attorney fees, court filings, internal investigations, expert witnesses, and depositions add up fast. If your organization ends up settling—even just to avoid protracted litigation—those costs can be devastating to a nonprofit’s budget. D&O insurance helps cover these expenses so your organization can focus on delivering value to your community, not funneling donor dollars into a legal battle. In fact, 63% of nonprofit organizations reported a D&O claim in the last 10 years, according to Towers Watson. It’s much more prevalent than many people realize.
3. Employment-Related Claims Are Among the Most Common
Nonprofits often rely on a mix of employees, contractors, and volunteers. While that flexibility is valuable, it can also make you more vulnerable to employment-related claims—especially if your HR processes aren’t airtight. Wrongful termination, harassment, retaliation, discrimination, and even wage-and-hour complaints are all common issues facing nonprofit employers. Many D&O policies include Employment Practices Liability Insurance (EPLI), which helps cover the cost of defending against these types of claims. That includes legal fees, settlement costs, and court judgments. Not to mention, volunteers can file harassment or wrongful treatment claims too. Coverage matters.
4. Donors, Grantors, and Government Contracts Require Accountability
Today’s funders expect transparency, professionalism, and good governance. In many cases, large grants—especially those from government agencies or foundations—come with clear stipulations about liability coverage and leadership protections. Having D&O insurance demonstrates that your organization is responsibly managed and legally prepared. It can also give funders peace of mind that their investment is protected, especially if a legal dispute arises during or after the life of a grant. Good governance isn’t just best practice—it’s part of your brand and reputation.
5. Regulatory Scrutiny Is Only Increasing
From the IRS to your state’s attorney general, regulatory agencies have broad authority to investigate and penalize nonprofits. These investigations can be triggered by a missed 990 filing, a whistleblower complaint, or an allegation of misconduct—even if it’s completely unfounded. Without insurance, your board may be forced to pay out-of-pocket for legal counsel to navigate the investigation process.
6. Smaller Nonprofits and All-Volunteer Boards Are Not Immune
Some leaders assume D&O coverage is only necessary for larger, more complex nonprofits. But smaller organizations—especially those run by volunteers or part-time staff—can be even more vulnerable. Without internal legal teams, HR departments, or policy advisors, small nonprofits may make decisions informally, opening them up to risk.
If a dispute arises over how donations were used, how an employee was terminated, or whether bylaws were followed, your team could be left scrambling—and paying for it. D&O coverage levels the playing field and makes sure your size doesn’t put your mission at risk. If you want to learn more about D & O insurance, check out our blog here for a comprehensive overview.
Not Sure Where to Start?
We help nonprofit leaders simplify coverage decisions and build smarter risk management strategies. If you’re unsure whether your current insurance is enough—or need help creating a better plan—let’s talk.
Book a free consultation today and get:
- A review of your current insurance policies
- A gap analysis for D&O and EPLI coverage
- A step-by-step plan for better board protection
Ready to Protect Your People and Your Purpose?
If you're ready to explore the Directors and Officers (D&O) insurance plans we offer, our team is here to help. We’ll walk you through your options, assess your current coverage, and build a plan that gives your board the confidence to lead—without fear of personal risk. Contact us today to schedule your free strategy call. Just submit our online form! We look forward to partnering with you and helping your nonprofit stay protected, proactive, and mission-focused.
