In the first part of our series, Nonprofit Insurance Essentials - Part One, we explored the crucial policies that will keep nonprofits protected. In this second installment, get ready for our essential guide to reading (and understanding!) your policies.
Congratulations! You now have a big stack of (electronic or paper) files with the details of your new policies. Time to get reading! But…. Remember not knowing about nonprofit finance? (Psst - this will help: From Novice to Knowledgeable: How to Foster Financial Savvy in Your Nonprofit.) Unfortunately, many of us also learned about insurance the hard way. But don’t fear – we’re here to help.
Here’s a nonprofit executive’s companion glossary for your policies, so you can read your policy like the boss you are. And a note: we’re going to use your General Liability Policy as our template, but this will apply to almost all of your coverage.
The ten terms to know (in alphabetical order):
- Aggregate Limit: The aggregate limit is the maximum amount an insurer will pay for all accumulated claims during a policy period. Once this limit is reached, the policy will no longer cover losses. Nonprofits need to monitor their claims against this limit to ensure they remain adequately covered throughout the policy period.
- Certificate of Insurance (COI): A COI is a document that provides evidence of your insurance coverage. It summarizes the key aspects of your policy, including types of coverage, policy limits, and effective dates. It’s often required when entering into contracts or agreements with third parties, such as landlords or funders.
- Claims-Made vs. Occurrence Policies: These terms refer to the two types of policy triggers for coverage. A claims-made policy provides coverage for claims filed during the policy period, regardless of when the actual incident occurred. In contrast, an occurrence policy covers incidents that happen during the policy period, regardless of when the claim is filed. Understanding the difference is crucial for knowing how your coverage works in relation to the timing of claims and incidents.
- Deductibles and Retentions. They’re similar but different: a deductible is an amount the policyholder pays out of pocket towards a claim before the insurance coverage pays the remaining costs. It's part of the total claim amount and is typically processed and handled by the insurance company. A retention is the amount the policyholder must pay and manage directly before the insurance coverage starts to apply. In this case, the policyholder is responsible for handling and paying the initial costs of a claim up to the retention amount.
- Endorsements: Endorsements are additions to the insurance policy that alter its terms and conditions. They can extend or limit the coverage provided. It’s vital to review any endorsements carefully as they can significantly change the policy's scope. For example, an endorsement might add coverage for a specific event not included in the standard policy.
- Exclusions: Exclusions are specific conditions not covered by the insurance policy. It's important to understand these exclusions to know what types of risks your nonprofit is not protected against. Common exclusions in General Liability policies can include intentional damage, contractual liabilities, and employee injuries (which are typically covered by workers' compensation).
- Named Insured: This term refers to the individual or entity, in this case, the nonprofit organization, identified in the policy as the insured party. It's important to ensure that all entities that should be covered, such as subsidiaries, are properly listed as named insureds to avoid gaps in coverage.
- Occurrence: An occurrence is an event that may trigger coverage under the insurance policy. In liability policies, an occurrence is typically an accident or exposure to harmful conditions that result in injury or damage during the policy period. Understanding what constitutes an occurrence in your policy is essential to knowing when to file a claim.
- Policy Limit: The policy limit is the maximum amount the insurance company will pay under a policy for a covered loss. General Liability policies often have different limits for individual claims (per occurrence) and the total claims within a policy period (aggregate limit). It’s crucial to know these limits as they determine the extent of coverage the policy provides. For instance, if a claim exceeds your policy's limit, your organization would be responsible for the excess amount.
- Premium: This is the same concept as health insurance coverage: the premium is the amount your organization pays to the insurance company in exchange for the coverage provided by the policy. Your rate is influenced by various factors including the type and amount of coverage, the organization's claim history, and the level of risk involved in your operations. Pro tip: try to negotiate quarterly or monthly payments to smartly manage cash flow. (If you need a refresher, read: You Can’t Eat a Budget: Understanding the Essentials of Cash Flow.)
When you know the language you’re halfway there. This guide is not just about comprehension, it's about equipping you with the tools to navigate the often-complex insurance landscape with confidence. So, stay informed and stay protected, and you’ll safeguard your organization's mission and assets.
This article is the second in our four-part series: Nonprofit Insurance Essentials. We break down everything nonprofit executives need to know to take charge and ensure you’ve covered all fronts.
