Directors & Officers Insurance Explained for Nonprofit Boards

Most nonprofit board members join because they care about the mission.

They want to give back. Offer guidance. Help the organization grow.

What they usually do not think about is personal liability.

Directors and Officers insurance, often called D&O insurance, exists to protect board members and executive leadership when decisions are questioned. It is not about expecting mistakes. It is about recognizing that leadership always carries risk.

What Directors and Officers insurance actually covers

At its core, D&O insurance protects board members, officers, and sometimes the organization itself when claims are made alleging wrongful acts in leadership decisions.

That can include claims related to:

Breach of fiduciary duty
Mismanagement of funds
Failure to follow bylaws
Conflicts of interest
Employment related decisions

Even when leadership acts in good faith, decisions can be challenged by employees, donors, regulators, or members of the public.

Defense costs alone can be significant, even if the claim has no merit.

Why nonprofit boards are not immune

There is a common belief that nonprofits are less likely to be sued because they serve the public good.

In reality, nonprofits face many of the same governance risks as for profit companies. In some cases, they face more scrutiny because they rely on public trust and donor funding.

Board members are responsible for oversight, financial stewardship, executive leadership decisions, and compliance. Those responsibilities create exposure, even in well run organizations.

Personal protection matters

One of the most important aspects of D&O insurance is that it can protect individual board members.

Without appropriate coverage, board members could potentially face personal financial exposure in certain types of claims. That risk can make recruitment and retention of qualified board members more difficult.

Clear communication about D&O coverage reassures board members that the organization takes governance risk seriously.

Limits and structure are not one size fits all

Not all D&O policies are structured the same way.

Coverage limits should reflect the size, visibility, and complexity of the organization. A small community nonprofit may need a different structure than a statewide or nationally recognized organization.

Policy language also matters. Certain exclusions, defense provisions, and coverage triggers can significantly impact how a claim is handled.

This is why a periodic review is important, especially as budgets grow or programs expand.

What boards should ask each year

Board members do not need to become insurance experts, but they should ask thoughtful questions.

Is our D&O policy active and current?
Do our limits reflect our current budget and exposure?
Are new board members automatically included?
Have we reviewed any exclusions that may apply to our operations?

These questions create awareness and accountability without adding unnecessary complexity.

D&O insurance supports confident leadership

Serving on a nonprofit board is meaningful work. It also carries responsibility.

Directors and Officers insurance does not eliminate risk, but it creates a layer of protection that allows leaders to focus on strategy and mission instead of personal exposure.

When boards understand how their coverage works, they can lead with clarity and confidence.

Insurance should not be mysterious. It should be understood, reviewed regularly, and aligned with the reality of how your organization operates.

‍

Not sure if your board is fully covered? Let’s talk it through.

‍

‍