What Should I Pay for D&O Liability Insurance?

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:

Organization	Annual 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.