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Is it Worth Purchasing Bonding Insurance for Your Nonprofit?


For all the good nonprofits do in this world, it's important they protect their organization when internal issues arise. From employee mishaps to potential lawsuits, the financial risk associated with managing a nonprofit is significant. Bonding, and nonprofit insurance in general, is a surefire way to protect against these perils. 

That being said, even if you are confident that you need bonding, how can you be sure you are purchasing the right policy? Where do you even start?

Thankfully, we can help you out! Here is what you need to know. 


What is Bond Insurance?

During nonprofit operations, many employees and directors manage financial resources and bank accounts. Those in contact with this sensitive financial information are often acting honestly only due to their personal integrity.

As a result, there is always the potential for someone to succumb to opportunity, behaving dishonestly. This may manifest in financial losses due to theft, embezzlement, forgery, alteration of financial records, or other financial damage to funds or assets through corrupt means. 

Bonding insurance coverage protects the employer from these situations, ensuring that your organization is reimbursed for any amount of loss resulting from such dishonest acts. 

Pro Tip: It is worth noting that bonding insurance does not cover lost or stolen data as that falls under the jurisdiction of cyber liability insurance. 


The Surety, the Principal, and the Obligee

Most nonprofits make use of surety bonds for this insurance coverage. In fact, in many industries, including construction and government agencies, this policy is an obligation to protect small businesses, financial institutions, or even large companies from loss incurred from internal fraudulent damages. 

However, it is easy to get lost in the legal terminology surrounding this type of bond agreement. In short, surety bonds involve a contract between three different people to make sure that your entity receives protection from fraudulent employees.

is-it-worth-purchasing-bonding-insurance-for-your-nonprofit-surety-principal-obligeeTrish is weighing the pros and cons of purchasing bonding insurance for her nonprofit.

To understand how surety bonds work, you will need to know about the relationship between sureties, principals, and obligees as well as what these words mean. 

Here is a summary:

The Surety

The surety is a synonym for the insurance provider. Whichever company you choose for your bonds, that is the surety. They are the ones offering the employee dishonesty bonds to meet your organization’s needs while backing the entire process to make sure all agreements with policyholders are met. 

The Principal

The principal references the individual or entity is actually purchasing the insurance coverage and is responsible for upholding their end of any agreement, just the same as the surety. This is the party required to provide the work as stated in the agreement. In construction, this would be the contractor.

The Obligee

The obligee is whatever party that is protected by the insurance, in this case, your nonprofit organization. In other words, this is who receives the benefit of insurance claims.


Types of Bonding Insurance

There are several different types of surety bonds. Let’s look at some of the most common options. 


Employee Bonding

Often referred to by a few different names, such as "employee dishonesty bonding" or simply "fidelity bonding," this bonding is the practice of selecting specific at-risk employees for organizational coverage

For example, employees whose primary responsibilities are handling money and bank accounts are premier choices for bonding protection. 

There are also specific categories of employee bonds available: 

Name Schedule Fidelity Bonds

In this situation, you create a list of employees that you wish to include in your policy and the amount of coverage for each. Any time that you wish to add a new employee to your policy, you must contact the company and request update applications. 

One of the major provisions for successful claims is that there must be definitive proof that a given employee did in fact steal from your organization. 

Blanket Position Bonds

This variant provides protection for specific nonprofit positions rather than individual employees. For example, if you choose protection for your treasurer position, your insurance company will reimburse you for qualified claims up to the maximum for your policy if the person designated for that role is dishonest in a financially damaging way.

is-it-worth-purchasing-bonding-insurance-for-your-nonprofit-typesTristan is feeling good about his newfound bonding insurance knowledge! 

These bonds do not require the same rigid verification of misconduct as the name schedule fidelity bonds, and you do not have to provide any updates when new employees take over the chosen roles as the position is protected rather than those individuals. 

Primary Commercial Blanket Bonds

This blanket insurance covers employees in general, treating them as one single unit for coverage purposes. For example, it does not matter if a single person or several were involved in fraudulent activity, your organization can make a claim appropriate to incurred losses.

Pro Tip: Employee bonding is the most common type of bonding insurance for nonprofit issuance due to the range of potential avenues for negligence. It is essential to think about which persons or positions within your organization carry the most risk. The role of treasurer, for example, is a common choice for bonding. 


Other Types of Bonding Insurance

These are different types of surety bonds that may prove useful to your organization.  

  • Performance Bonds - This type of contract ensures that a project will be completed within expected time constraints while fulfilling all legal regulations and other important considerations. 

  • Payment Bonds - Similar to performance bonds in that this type is related to specific projects, this agreement ensures that people who are supposed to receive payment will do so. 

  • License and Permit Bonds - When a company has the potential to cause an increased risk of harm to customers due to the nature of its services, license and permit bonds to ensure that these associations fulfill all regulations related to their legally required licenses and permits. 


Is the Insurance Right for You?

Bonding is generally a good idea as long as you can afford the premiums and other associated costs. The advantage they afford in shielding your nonprofit from situations that could devastate your organization is invaluable when those circumstances arise. 

is-it-worth-purchasing-bonding-insurance-for-your-nonprofit-right-for-youSalma has decided to go with bonding insurance for her organization!

Perhaps the most tricky part is determining which type provides the coverage you need at a rate that will not break the bank. You also must decide whether you need multiple policies to cover additional risks and exceptions.


Safeguarding your Nonprofit

Bonding insurance provides coverage for only one aspect of nonprofit risk assessment. If you want to safeguard your nonprofit, you need to consider a few other types to provide peace of mind so you can focus on your mission without fear that an unforeseen circumstance can undermine all of your hard work!


Springly is trusted by over 20,000 nonprofits to help them run their organizations on a daily basis. Try it, test it, love it with a 14-day free trial!


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