Is It Necessary for Charities & Not-for-Profits to Carry Insurance and Liability Coverage?

Operating a charity or not-for-profit organization in Canada involves managing numerous risks that could threaten the organization's financial stability and mission. Insurance coverage represents a critical component of responsible nonprofit management, yet many charity leaders struggle to determine what coverage is truly necessary.

While insurance premiums can strain limited nonprofit budgets, the potential costs of operating without adequate protection far exceed the expense of proper coverage. A single lawsuit, accident, or property loss could exhaust an organization's reserves and halt charitable activities indefinitely.

This comprehensive guide examines insurance requirements for Canadian charities, explores essential coverage types, and provides practical guidance for nonprofit leaders making insurance decisions. Understanding these fundamentals helps organizations protect their assets, staff, volunteers, and the communities they serve.

Understanding Insurance Coverage for Canadian Charities and Nonprofits

Insurance for charitable organizations operates on different principles than personal coverage, with unique considerations for premium calculations and policy structures. Nonprofit leaders need foundational knowledge about how insurance works to make informed coverage decisions.

How Insurance Premiums Are Calculated for Charities

Insurance companies determine nonprofit premiums based on statistical data collected from similar organizations across Canada rather than individual organizational history. Even charities that have never filed a claim pay rates calculated from national-level risk assessments for comparable nonprofits.

Several key factors influence premium calculations:

• Type and scope of charitable activities conducted
• Organizational size, annual budget, and revenue
• Number of paid staff and active volunteers
• Geographic location and facility characteristics
• Sector-wide claims history and emerging risks

This statistical approach means individual organizations cannot necessarily reduce premiums simply by maintaining claim-free records. Broader insurance market conditions and sector trends significantly impact costs across all nonprofits in similar categories.

The Difference Between Personal and Commercial Insurance

Personal lines insurance protects individuals and their assets, covering items like homes, personal vehicles, and individual liability. Commercial lines insurance serves organizations and businesses, protecting entity-owned assets and providing coverage against organizational liability claims.

Charities require commercial insurance because personal policies exclude coverage for organizational activities and business operations. Personal liability insurance will not protect a charity if someone sustains injuries during a nonprofit event or program.

Commercial policies address the unique risk profiles that charitable organizations face. These specialized policies cover everything from volunteer activities to board governance decisions.

Does Your Charity Need Insurance in Canada?

Canadian insurance requirements for nonprofits vary by province and depend on specific organizational activities. Understanding legal mandates helps charities meet minimum obligations while ensuring adequate protection.

Provincial Insurance Mandates for Nonprofits

Ontario law does not mandate insurance coverage for most nonprofit activities, with one critical exception. Charities must maintain volunteer driver vehicle insurance when volunteers use personal vehicles for organizational purposes.

This mandatory coverage protects both volunteers and organizations when volunteers drive for charity-related activities. Failure to maintain proper coverage exposes organizations to significant liability.

Other Canadian provinces maintain different requirements, making consultation with provincial nonprofit associations or legal advisors essential for compliance.

Assessing Organizational Risk Profiles

Even without legal mandates, charities must evaluate risk exposure to make responsible coverage decisions. Three fundamental questions guide this assessment process.

What is the likelihood of incidents occurring? 

Organizations should consider their activities, client populations, volunteer involvement, and operational environments when estimating risk probability.

How would incidents impact organizational finances?

Single lawsuits frequently generate legal costs and potential settlements reaching hundreds of thousands of dollars.

Would legal assistance be required to defend claims? 

Even unfounded lawsuits demand expensive legal representation to protect organizational interests.

The Cost-Benefit Analysis of Carrying Insurance

For most nonprofits, paying predictable annual insurance premiums proves far more manageable than facing catastrophic uninsured losses. One significant uninsured claim could deplete reserves, halt programs, and potentially force organizational closure.

Insurance provides budget-friendly predictability through fixed annual costs. Operating without coverage exposes organizations to unlimited liability that could materialize without warning.

Charities facing major lawsuits without insurance coverage often lack resources to mount effective legal defences while continuing normal operations. The financial strain frequently proves insurmountable for small to medium-sized organizations.

Essential Insurance Policies for Canadian Charities and Not-for-Profits

Multiple insurance policy types address different risk categories that nonprofits face. Comprehensive coverage requires understanding each policy type and how it protects against specific threats to organizational stability.

Loss Coverage: Protecting Organizational Assets

Loss coverage policies protect physical assets that charities own or lease, providing financial protection against damage, theft, or loss. These policies ensure organizations can replace essential items and continue operations after unexpected property incidents.

Typical loss coverage includes:

• Buildings, leased office spaces, and facilities
• Computer equipment, servers, and technology
• Organization-owned vehicles and equipment
• Critical documents, records, and archives
• Furniture, fixtures, and supplies

Comprehensive loss coverage considers replacement costs for everything needed to restore operations after fires, break-ins, natural disasters, or other property damage incidents.

Lawsuit Coverage: Liability Protection for Nonprofits

Liability policies protect organizations and their members from legal claims, often called lawsuit coverage, because they activate when parties file claims against charities. These policies provide essential legal defence regardless of claim merit.

Liability coverage pays legal defence costs even when lawsuits prove baseless or frivolous. Policies also cover settlements or judgments when courts find organizations liable for damages.

Without liability protection, charity assets and board members' personal finances face direct exposure to legal claims and judgments.

Commercial General Liability (CGL) Coverage Explained

Commercial General Liability insurance forms the foundation of most nonprofit insurance programs, protecting against common risks that charitable organizations regularly encounter. CGL coverage provides broad protection across multiple risk categories.

Standard CGL policies typically include:

• Bodily injury coverage: Protection when individuals sustain injuries on organizational property or during charity activities
• Property damage protection: Coverage when organizations accidentally damage property belonging to others
• Personal injury coverage: Defence against claims involving slander, libel, defamation, or privacy violations
• Medical expenses: Payment for minor medical bills without requiring formal lawsuits
• Tenants' legal liability: Protection for organizations leasing office or program space
• Non-owned vehicle liability: Coverage when staff or volunteers use personal vehicles for organizational purposes

CGL policies serve as the primary defence against everyday risks that charities face while serving communities and operating programs.

Directors' and Officers' Liability Insurance (D&O)

Directors and officers face personal liability exposure for decisions made while serving in governance roles. Board members can be held personally responsible for actions taken collectively by boards or individually in leadership capacities.

Directors' and Officers' Liability insurance protects board members from personal financial loss related to governance decisions. This coverage proves crucial for recruiting and retaining qualified board members who might otherwise hesitate to accept governance roles.

D&O policies typically cover:

• Legal defence costs for directors and officers named in lawsuits
• Settlements or judgments against individual board members
• Coverage for decisions made in good faith that produce negative outcomes
• Protection for employment-related decisions affecting staff

Many qualified professionals refuse board service without D&O insurance protection, making this coverage essential for governance strength.

Additional Insurance Policies to Consider

Beyond foundational coverage, charities should evaluate additional specialized policies based on their specific activities and risk profiles.

Professional Liability/Errors and Omissions: Protects organizations providing professional services or advice from claims of negligence or inadequate service delivery.

Cyber Liability Insurance: Covers costs associated with data breaches, ransomware attacks, and digital security incidents affecting donor or client information.

Employment Practices Liability: Protects against claims from current, former, or prospective employees alleging discrimination, wrongful termination, or harassment.

Special Event Insurance: Provides short-term coverage for fundraising events, conferences, or community gatherings that create a temporary increased risk.

Volunteer Accident Insurance: Covers medical expenses when volunteers sustain injuries while performing organizational duties.

How to Read and Interpret Insurance Policies

Understanding insurance policy language and structure helps nonprofit leaders ensure their coverage matches organizational needs. Policy documents contain critical information about what is and is not covered.

Key Components of Nonprofit Insurance Policies

Insurance policies contain several essential sections that define coverage scope and limitations. Familiarising oneself with these components helps clarify exactly what protection exists.

Named insureds identify who receives coverage protection under the policy. This section clarifies whether staff, volunteers, board members, and the organization itself receive protection.

Coverage definitions explain what specific terms mean within the policy context. Insurance language often differs from everyday usage, making these definitions critical for understanding coverage scope.

Policy limits establish maximum amounts insurers will pay for covered claims. Organizations must ensure limits adequately protect against realistic risk scenarios.

Critical Questions About Coverage

When reviewing policies, nonprofit leaders should seek clear answers to specific questions that determine coverage adequacy.

What receives coverage, and what exclusions exist? Policies explicitly list covered scenarios and excluded situations where coverage does not apply. Exclusions often surprise policyholders who assumed broader protection.

Who receives coverage protection? Policies specify whether volunteers, contractors, special committees, and various stakeholder groups receive coverage alongside permanent staff and board members.

What coverage gaps exist? Understanding policy limitations helps organizations identify areas requiring additional coverage or risk management strategies.

Understanding Policy Exclusions

Exclusions represent situations, activities, or circumstances that policies specifically do not cover. Common nonprofit policy exclusions often include:

• Intentional illegal acts or criminal conduct
• Claims arising from sexual abuse or molestation
• Pollution or environmental damage
• Professional services outside organizational expertise
• Cyber incidents (unless cyber liability coverage exists)

Reviewing exclusions carefully helps organizations understand their true coverage scope and identify potential vulnerabilities requiring attention.

Working with Insurance Brokers or Agents

Insurance professionals can clarify confusing policy language and confirm coverage details. When policy wording proves unclear, nonprofit leaders should request written confirmation of coverage for organizational records.

Documenting coverage confirmations protects organizations if disputes arise later about whether specific situations receive coverage. Email confirmations or formal letters from brokers provide valuable evidence of coverage understanding at policy purchase time.

Professional insurance advisors should answer questions clearly and provide examples illustrating how coverage applies in realistic scenarios.

Best Practices for Purchasing Insurance for Charities

Strategic approaches to insurance purchasing help nonprofits secure adequate coverage at reasonable costs. Following proven best practices improves coverage quality while managing expenses effectively.

Essential Do's When Buying Nonprofit Insurance

Select experienced nonprofit insurance brokers. Working with brokers who specialize in charitable organizations ensures access to appropriate policy options and sector expertise. Questions to ask prospective brokers include:

• What percentage of your business comes from nonprofit clients?
• How many charitable organizations do you currently serve?
• What types of nonprofits do you regularly insure?
• Can you provide references from similar organizations?

Thoroughly understand purchased policies. Taking time to read and comprehend policy details prevents surprises when claims arise. Leaders should never sign insurance documents without understanding coverage scope and limitations.

Negotiate rates and coverage terms. Insurance costs and terms are often negotiable, particularly for organizations with strong risk management practices or favourable claims history.

Monitor market conditions. Insurance markets fluctuate between "soft" markets with competitive pricing and "hard" markets with rising premiums. Contacting brokers several months before renewal allows time to explore multiple options.

Address conflicts of interest. When insurance brokers serve on organizational boards, conflicts of interest require management through broker resignation from the board or engaging different insurance professionals.

Critical Don'ts When Purchasing Coverage

Never assume premiums will decrease automatically. Claims-free organizations may still face premium increases due to market conditions and sector-wide trends. Historical performance represents only one premium calculation factor.

Don't expect long-term insurer commitment. Insurance companies regularly exit nonprofit market segments or decline to renew policies based on business strategy changes. Small and medium-sized charities face similar challenges as comparable for-profit businesses.

Avoid being overly trusting. Nonprofit leaders have fiduciary duties to protect organizational assets through due diligence. Vague assurances of coverage prove insufficient; written documentation and clear policy understanding remain essential.

Questions for Insurance Brokers

Effective broker relationships require asking pointed questions that reveal expertise and market approach:

• How many insurers will you approach for our coverage?
• What makes you qualified to serve nonprofit organizations?
• How do you stay current on emerging nonprofit risks?
• What claims experience do your nonprofit clients typically have?
• How will you help us understand and manage our coverage?

Thoughtful broker selection significantly impacts coverage quality and cost-effectiveness over time.

Risk Management Strategies Beyond Insurance

Insurance provides essential financial protection but represents only one component of comprehensive risk management. Proactive risk management reduces claim frequency and demonstrates due diligence to insurers and stakeholders.

Implementing Risk Management Policies

Comprehensive risk management frameworks identify potential hazards before incidents occur. Strong frameworks include regular risk assessments, documented policies, staff training, and board oversight.

Board governance responsibilities include reviewing risk management policies annually and ensuring adequate resources support risk mitigation efforts. Regular policy updates reflect changing organizational activities and emerging risk awareness.

Documenting and Reporting Incidents

Proper incident documentation supports insurance claims and demonstrates organizational professionalism. Incident tracking systems should capture:

• Date, time, and location of incidents
• Individuals involved and witnesses the information
• Actions taken in response
• Follow-up measures implemented

Prompt incident reporting to insurers preserves coverage rights and facilitates efficient claims processing. Many policies require notification within specific timeframes regardless of whether formal claims will be filed.

Protecting Charity Futures with Proper Insurance Coverage

Insurance represents a fundamental responsibility for Canadian charities committed to long-term sustainability and community impact. While coverage costs may strain nonprofit budgets, the consequences of operating without adequate protection prove far more expensive.

Nonprofit leaders have fiduciary duties to protect organizational assets and ensure operational continuity. Proper insurance coverage fulfills these obligations while providing peace of mind that allows focus on mission-critical activities.

The decision about insurance coverage ultimately balances risk exposure against available resources. Most Canadian charities find that investing in comprehensive coverage proves far more prudent than risking organizational survival on unlikely but potentially catastrophic events.

Need expert guidance on insurance and risk management for your Canadian charity? 

B.I.G. Charity Law Group provides specialized legal advice for nonprofit organizations navigating insurance decisions, governance responsibilities, and regulatory compliance. 

Schedule a free consultation today to ensure your organization has the protection it needs to serve your community with confidence.

Frequently Asked Questions 

Many Canadian charity leaders have common questions about insurance requirements and coverage options. Here are straightforward answers to help nonprofit organizations make informed decisions.

Do not-for-profits need insurance?

Not-for-profits in Canada are not legally required to carry most types of insurance, except volunteer driver coverage in Ontario. However, insurance is highly recommended for nearly all nonprofits. 

Without coverage, organizations risk serious financial losses from lawsuits or accidents that could halt operations. Most experts consider insurance essential protection rather than an optional expense.

Do charities need liability insurance?

Charities should strongly consider carrying liability insurance to protect against lawsuits and claims. This coverage pays for legal defence costs and potential settlements when someone alleges injury or harm caused by the organization. 

Even unfounded claims require expensive legal representation that most charities cannot afford without insurance. While not legally required in most provinces, liability insurance is considered a best practice for responsible charity governance.

Are nonprofits required to provide health insurance?

Canadian nonprofits are not legally required to provide health insurance to employees. 

Canada's universal healthcare system covers basic medical needs, so organizations face no legal mandate for supplemental coverage. 

However, many nonprofits choose to offer health benefits to attract and retain qualified staff members.

What is liability insurance for nonprofits?

Liability insurance for nonprofits protects organizations from financial losses related to lawsuits and legal claims. 

This coverage pays for legal defence costs when someone sues the charity for alleged harm or damages. Common types include Commercial General Liability for everyday operations and Directors and Officers Liability for governance decisions. 

These policies help organizations continue their mission even when facing legal challenges.

What liability does a non-profit organization have?

Non-profit organizations face multiple types of liability in Canada. Charities can be held responsible for injuries on their property, harm from their activities, employment-related claims, and contract breaches. 

Board members may face personal liability for governance decisions and regulatory compliance failures. Nonprofits also carry liability for actions taken by staff and volunteers. 

Without proper insurance, these liabilities could result in significant financial judgments against the organization and individual board members.