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What Should I Pay for D&O Liability Insurance?

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Recently, a Spokes member asked a simple question: “We just received a quote for Directors and Officers insurance. Does the premium seem reasonable?”

Good question! To help answer it, I decided to compare what three local nonprofit organizations I know are paying for Directors and Officers (D&O) liability insurance.

Here’s what I found:

OrganizationAnnual Cost
Recreational club — 501(c)(7)$740
Spokes — 501(c)(3)$1,854
Community civic league — 501(c)(4)$2,230

That’s quite a range! But as I dug deeper, I discovered that comparing premiums alone can be misleading.

For example, Spokes is the only one of these organizations with paid employees. Its $1,854 annual cost includes $713 for Employment Practices Liability Insurance (EPLI), which protects against certain employment-related claims, plus a $250 broker fee. The D&O portion costs just $891.

All three organizations carry $1 million in D&O coverage, but their policies differ in important ways. Some have no deductible (technically called a retention), while others require the organization to pay thousands of dollars before coverage kicks in. Another significant difference is whether legal defense costs reduce the amount available to pay a judgment or settlement.

I also discovered something surprising. The organization paying the highest premium is a small, volunteer-run civic league with no employees. Yet its policy includes provisions designed for homeowners associations, even though the organization has no authority to regulate neighborhood properties. That raises the possibility that the insurer may not fully understand the organization’s activities and risks.

So, how can you tell whether your nonprofit’s D&O insurance quote is reasonable? Here are five things to consider:

  1. Coverage limits and deductibles. How much protection are you purchasing, and how much would your organization have to pay out of pocket if a claim arises?
  2. Legal defense costs. Are attorney fees and other defense expenses included within the coverage limit, or are they covered separately? This can make a substantial difference.
  3. Employment practices coverage. If your organization has employees, does the policy include protection against employment-related claims such as wrongful termination, harassment, or discrimination?
  4. How the insurer classifies your organization. Does the insurer accurately understand what your nonprofit does? An incorrect classification could affect both premiums and coverage.
  5. Exclusions. What isn’t covered? Pay particular attention to exclusions that might apply to your organization’s specific activities and risks.

The bottom line: Don’t evaluate D&O insurance on price alone. Two policies with the same $1 million coverage limit may offer substantially different protection. Ask your insurance broker to walk you through these five considerations—and don’t hesitate to request a competing quote.

A little homework could save your nonprofit money while ensuring that its board members and officers have the protection they need.

Does Your Nonprofit Have the Right Policies in Place?

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Organizational policies—and the updates they require—can easily fall to the bottom of an overworked nonprofit’s to-do list. It’s the kind of paperwork no one ever feels like tackling. But when an unexpected leadership transition, challenging personnel matter, or board conflict arises, clear and current policies are essential.

Outdated or missing policies can expose your nonprofit to unnecessary financial, legal, and reputational risks.

Check out this helpful article from NonProfitPRO to learn which policies and documentation can help safeguard your organization. It even includes a comprehensive checklist to help you identify gaps and prioritize the policies your nonprofit needs most.

Remember: Your board policies can evolve as your organization grows, and you don’t need to tackle everything at once. Start with the most important policies and build from there.

Could Your Nonprofit Be Out of Compliance?

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It happens more often than you might think.

Recently, a small nonprofit contacted Spokes with a question about its filings. After a quick compliance review, we discovered the organization had unintentionally lost its tax-exempt status. Like many nonprofits, they believed they had filed everything correctly and had no idea there was a problem.

Unfortunately, over the years we’ve seen several organizations find themselves in similar situations.

California nonprofits have numerous filing requirements each year. For many organizations, some of those required filings are surprisingly simple—even a one-page form or IRS e-Postcard. But missing just one required federal or state filing can have significant consequences.

While it’s often possible to restore an organization’s good standing, the process can be lengthy, involve additional paperwork and fees, and divert valuable staff and board time. A few minutes spent reviewing your compliance status now can help prevent much bigger headaches down the road.

CalNonprofits recently shared two excellent compliance resources:

We encourage every nonprofit to take a few minutes to review these resources and make compliance part of its annual organizational checkup!

Perks for Board Members?

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Recently, one of our Spokes member organizations inquired about the legality of providing a “perk” to board members. In this particular instance, the perk would be free tuition to an educational program run by the nonprofit. I had some concerns about such a practice. With the help of ChatGPT, I did some research and my concerns were confirmed. Here’s how I responded:

Providing a tuition discount to board members whose children are enrolled in your program is not automatically prohibited, but it raises several important legal and governance concerns that should be carefully considered.

First, under California law, a director who receives a material financial benefit from the organization may be classified as an “interested person.” If multiple board members utilize the discount, this could risk exceeding the rule that no more than 49% of the board may be composed of interested persons.

Second, while this type of discount would not be considered compensation, it does represent a financial benefit tied to board service. The Internal Revenue Service generally prohibits private inurement and limits private benefit in 501(c)(3) organizations. A benefit available only to board members—rather than based on need, employment, or program criteria—may raise concerns in this area.

Third, offering such a benefit introduces ongoing conflict of interest considerations. Board members receiving the discount would have a personal financial interest in decisions related to tuition, enrollment, and program policies, requiring disclosure and recusal. This can complicate governance and affect public trust.

Finally, there is an equity consideration. A tuition discount would only benefit board members with age-eligible children, creating an uneven “perk” structure that may affect board culture and recruitment.

Best Practice Recommendation
Most nonprofits avoid providing financial benefits tied to board service. Instead, they maintain board roles as strictly voluntary and uncompensated. If tuition assistance is offered, it is typically structured based on objective criteria such as financial need or made broadly available to program participants, not linked to governance roles.

Conclusion
While the proposed policy may be legally permissible if carefully structured, it carries sufficient legal, ethical, and practical concerns that it is generally not recommended as a best practice.

Public Charities Can Advocate—What You Need to Know

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Many nonprofits hesitate to engage in advocacy because the rules can feel unclear or intimidating, but advocacy is not only allowed, it’s often essential to advancing your mission. Check out this recent presentation, Public Charities Can Advocate!, developed by Alliance for Justice’s Bolder Advocacy program, and its accompanying resources.

These materials break down, in plain language, what 501(c)(3) nonprofits can and cannot do when it comes to lobbying, nonpartisan advocacy, voter engagement, and election-season activities.

Public Charities Can Advocate! Presentation

A Guide to Election-Related Activities for 501(c)(3) Organizations

A Guide to the IRS Lobbying Regulations for Advocacy Charities

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