Charity Insurance Explained - Guide To Not-for-Profit Cover
The tens of thousands of charities and not-for-profit organisations throughout the UK face many risks that can result in loss, damage or liability risk, both for the charity as a whole, and the trustees.
Typical risks include damage to a charity’s property, loss of a charity asset or resources, and third party liability for public liability or professional indemnity exposures.
Part of mitigating these risks is having an appropriate Charity Insurance Policy. The following is a brief guide of different covers that typical charities should consider, but you should always take expert advice on your own individual and specific risks and exposures.
Compulsory Insurance Requirements
There are certain types of insurance that charities and social enterprise businesses may be required by law to purchase, depending on their specific circumstances.
Employers Liability Insurance (EL)
If your charity employs staff it is considered an employer under the law. Under the Employers' Liability (Compulsory Insurance) Act 1969, all UK employers are required to take out EL cover with a minimum cover of £5 million, providing cover for injuries or diseases that employees may suffer in the course of their employment.
If a charity, Community Interest Company (CIC) or other not-for-profit entity operates or owns motor vehicles, it must comply the provisions of the Road Traffic Act 1988, which includes the requirement to take out insurance against third party injury and property damage.
If employees, volunteers or trustees use their own personal vehicles on charity business, you will also have a duty of care to make sure that the vehicle owner’s insurance covers such use. If it doesn’t, then the charity should request that cover is arranged BEFORE any vehicle is used on charity business.
Other Common Charity Covers
Whilst other cover is not compulsory by law, the Charity Commission recommends that a Charity Insurance Policy is arranged to mitigate other potential risks including:
Charities that are freehold property owners should insure the building for its full reinstatement value. This means that the sum insured, or maximum amount payable by the insurer, should be enough to cover demolition work, site clearing, professional fees and building replacement in case anything should happen to the building.
It is recommended that trustees obtain advice from a professionally qualified building surveyor to determine the correct sum insured amount to avoid any potential liability.
If the charity is a lessee of the property, the terms of the lease should be reviewed to determine who is responsible for insuring the building — the landlord or the charity itself. Depending on the terms, the charity may also be responsible for repairs to the property, or simply a commitment to reimburse the landlord for the property insurance premium.
Charities need to have a suitable policy in place that covers the contents of the building, such as furniture, equipment and money. This is commonly done on a ‘new for old’ basis, meaning that the charity is compensated the current market replacement value for the item.
Occasionally, some items can be almost irreplaceable and specialist cover will be arranged on an ‘agreed value’ basis, meaning that the claims payment will be based on this agreed-upon figure.
TOP TIP - Find out whether theft cover is provided in the policy, including the cost of investigating and attempting to recover stolen items. Does cover extend to items away from the premises? - Or stored at third party locations as required?
Public Liability Insurance
Public Liability provides indemnity against third party legal liability claims for bodily injury or illness or damage to third party property for which the charity or social enterprise is responsible.
For most charities the public liability risk will fall into two key areas:
- Liability at your Property – Covering incidents which may occur at any trading premises, such as an office or other physical location. For example, a donor is dropping off a sponsorship form at your office and trips over a loose carpet tile and breaks their leg.
- Liability Away from the Premises – Most social enterprises will carry out on-going fundraising or other activities away from the main premises. Cover can be arranged for specific events such as fun runs, shows or community projects, or in many cases an annual policy will provide blanket cover for most types of fundraising projects.
TOP TIP – Check your Charity or CIC Insurance policy carefully to ensure you understand what type of activities are excluded from your Public Liability cover as well as the geographic limits should you work outside of the UK.
Professional Indemnity / Professional Liability
If your charity provides a professional service, such as counselling, or any form of advice or information, the charity may be held liable if the service, advice or information was provided negligently.
The charity could be held legally liable for loss, injury or damage that was sustained when the service was provided or as a result of following the advice or information.
Professional Indemnity Insurance will provide indemnity against such incidents, but you should make the insurer aware of all the different advice and services provided, this also applies on an on-going basis should activities change at any point.
Trustee Indemnity Insurance
Trustees in a charity are required to follow certain duties laid out by law. Trustee Indemnity Insurance provides cover which protects trustees from having to personally pay out legal claims against them that arise from negligence or a breach of trust or duty.
It can also cover the charity for corporate liabilities that arise from a trustee’s breach of duty or negligence. However, this will not cover costs related to a criminal fine or penalty, or costs from the trustee being convicted of fraud, dishonesty or a reckless or deliberate act.
Crime, Fidelity and Employee Dishonesty
Employee dishonesty or Crime Insurance covers losses arising from fraudulent or dishonest conduct by employees when handling charity money or other valuables.
It is normally recommended to extend cover to volunteers. However, obviously this cover is a safeguard rather than a replacement to appropriate management and training of volunteers. Crime Insurance claims are usually only paid if the charity can show that its arrangements were adequate and that employees were being correctly supervised.
Legal Expenses Cover
The costs of defending your charity or social enterprise in a legal proceeding, such as an employment or other HR dispute, can be considerable. This cover can help to protect the charity against legal expense costs, which may arise if the charity has to bring or defend legal proceedings.
Other Potential Cover
Depending on the individual circumstances and size of your charity, you may also want to consider covers for :
- Specific Charity Events
- Personal Accident to Employees or Volunteers
- Acts of Terrorism and / or political violence
- Increased Cost of Working - additional expenses incurred to continue to operate following an insured loss such as a fire
- Travel cover for Charity Workers
Many charities will use the services of volunteers. While volunteers are not considered employees by law, charities still have a duty of care to ensure their health and safety and give them proper training and supervision. As such, it is important that Employers Liability Insurance and Public Liability cover extends to cover the indemnity and actions of any volunteers.
If a volunteer is injured as a result of the charity’s negligence, he or she could file a claim against the charity or trustees. The charity and its volunteers should also be covered in case a third party is injured due to actions of volunteers.
- Whether the insurance policy includes volunteers, such as employers’ liability extending to volunteers
- What the policy definition for ‘volunteer’ is
- Whether any upper or lower age limits apply
- What types of volunteer activities are covered
TOP TIP – Check out our more detailed article on Charity obligations and considerations when dealing with volunteers.
FREE Insurance Review
Insync specialises in all areas of cover for charities, CIC’s and other social enterprises. As every single entity is different, it is advisable that cover is tailored to your specific requirements.
Why not book a free review with one of our Charity Insurance Gurus, who can use their industry expertise to create a bespoke policy that addresses all your specific risks.