Non-Profits Can Avoid Pitfalls By Carrying Charity Insurance

The amount of total charitable contributions by individuals, corporations, and foundations was an estimated $335.17 billion in 2013. Make no mistake, Americans are known for their generosity, civic duty, and desire to help others. It can be said that, as a nation, we rise to the occasion time and again to help those less fortunate individuals in need. This becomes even more evident by the significant and diverse charities that make up a large component of our communities.

Unfortunately, doing charitable work does not provide immunity to the many nonprofit organizations that are open to the inherent exposures associated with their line of work, or those that fail to obey the law, which is why they need charity insurance coverage for the exposures they face.

Non-profits often lack experience in this area

Nonprofit charitable organizations often do not budget properly, which leads to their not hiring experienced accounting, legal, or tax professionals to guide them through the legal and regulatory issues that can become a major concern. Predictably, they end up making costly errors as things end up slipping through the cracks.

Lawyers that frequently counsel nonprofit organizations describe some of the common types of legal trouble their clients often face, and how best to avoid some of those pitfalls. To protect a charity’s integrity and bank account, the lawyers say they must follow these important tips:

1. Always read the fine print. One of the most common mistakes that nonprofit organizations make is failing to read, understand, and negotiate contract terms.

2. Charity workers tend to be a little too trusting of the parties they deal with. They often assume that, because people are pleasant to work with, the terms of contracts will be fair.

3. Get sufficient insurance coverage. Many charities are so dedicated to their missions and programs that they fail to pay attention to some basic administrative needs, such as protecting themselves against liability risks.

4. Keep track of paperwork and deadlines. Another increasingly frequent and serious pitfall that charities face is the failure to comply with continuous reporting and remittance requirements under federal, state, and local laws.

5. Keep compensation reasonable. Payment of excessive compensation to people who are connected to a charity’s staff, such as members of employees’ or trustees’ families, can certainly be an issue. The amount of compensation needs to be “reasonable” in relation to the services being provided.

Charities function as a way of aiding less fortunate people but can come under heavy scrutiny. To avoid legal entanglements, always carry adequate charity insurance at all times.