26.11.25

Benefits of D&O Insurance for not-for-profit

The following article details the benefits of Directors’ & officers’ (D&O) insurance for not-for-profit organisations. However, before we get into the detail it’s important to establish the difference between a Charity and a not-for-profit. Please see the disclaimer below.

What’s the Difference Between a Charity and a Not-for-Profit?

There’s often confusion about the difference between a charity and a not-for-profit organisation. Before setting up a charity, it’s important to understand this distinction, as your choice of structure will affect key areas such as tax treatment, regulation, and legal responsibilities.

The key point to remember is:

All charities are not-for-profit, but not all not-for-profit organisations are charities.

Let’s break down the differences in the UK.

Disclaimer: The information below is accurate to the best of our knowledge at the time of writing. For full guidance on legal obligations and structures, please refer to gov.com or consult a legal advisor. Regulations may vary by region.

What is a Charity?

A charity is an organisation that is registered with the Charity Commission and exists solely for charitable purposes that benefit the public.

To be recognised as a charity in England and Wales, your organisation must:

• Be established for charitable purposes (e.g. relieving poverty, advancing education, promoting health).
• Fall under the jurisdiction of the High Court’s charity law.

Benefits of Being a Charity

• Tax exemptions: Registered charities don’t pay tax on most forms of income, such as donations, grants, and rental income.
• Credibility: Charity registration adds legitimacy and can improve access to funding and public trust.

Types of Charity Structures

• 1. Charitable Incorporated Organisation (CIO)
  • Regulated only by the Charity Commission.
  • Provides limited liability protection for trustees.
  • Simplified reporting compared to charitable companies.
• 2. Charitable Company (Limited by Guarantee)
  • Registered with both Companies House and the Charity Commission.
  • The organisation has its own legal identity, can own property, and enter into contracts.
  • Liable for its own debts.
  • Trustees also serve as company directors.
• Find out more about Trustees’ indemnity insurance {Here}
• 3. Unincorporated Association
  • A group of individuals working together for a common purpose.
  • Suitable for small, low-risk charities.
  • Has no separate legal identity – trustees may be personally liable.
• 4. Charitable Trust
  • A structure where assets are held and managed by trustees for charitable purposes.
  • Common for grant-making organisations.
  • Flexible but can be complex depending on the type of trust used.

What is a Not-for-Profit Organisation?

A not-for-profit is a general term for organisations that do not operate to generate profit for private individuals. Any surplus income is reinvested into the organisation’s mission.

However, “not-for-profit” is not a legal structure in itself. It can refer to a range of entities including:

• Community Interest Companies (CICs)
• Social enterprises
• Community groups
• Clubs and societies
• Co-operatives
• Charities

Key Differences from a Charity

• Not all not-for-profits are eligible to register as charities.
• Not-for-profits may have more flexibility in their operations but do not benefit from the same tax exemptions.
• Not subject to the same level of regulation by the Charity Commission.

What Does This Mean for Your Insurance?

Regardless of whether you are a charity or a not-for-profit, you have a duty to protect your organisation, employees, volunteers, and service users.

Having the right charity insurance in place is essential to safeguard your:

• Assets
• Liabilities
• Reputation
• Operational continuity

With over 20 years’ experience, we work with leading insurers to provide tailored insurance solutions for charities, community groups, and not-for-profit organisations.

Now the Benefits of D&O Insurance for not-for-profits.

Trustees, directors, officers, committee members and governors of not-for-profit organisations can all be held personally responsible for the decisions and actions they take on behalf of their organisation. Even when acting in good faith, mistakes, oversights or poor outcomes can lead to allegations of wrongful acts, breaches of duty, financial mismanagement or negligence. As a result, individuals may face legal proceedings, regulatory investigations, and claims alleging financial loss – exposing them to potentially serious reputational and personal financial consequences.

Given these risks, leaders should consider Directors’ and Officers’ (D&O) insurance – often referred to in the charitable sector as Charities’ & Trustees’ Liability (Indemnity) insurance – which provides vital financial protection if legal action or regulatory scrutiny arises from their activities with the organisation.

D&O insurance can provide the following benefits: –

Legal cost reimbursement – In the event of a claim, D&O policies can provide defence cost cover for a variety of claims. Specifically, D&O insurance can provide legal cost reimbursement to not-for-profit leaders following allegations of wrongful acts, financial mismanagement, errors in judgement and negligence.

Peace of mind – D&O claims can come from a variety of sources, including employees, recipients of services, and donors. D&O insurance ensures that not-for-profit leaders are protected regardless of where claims originate, providing timely and effective cover.

Entity cover – A number of D&O policies go beyond protecting directors and officers and extend to the organisation itself. This is particularly advantageous, as this type of cover kicks in even if a director or officer isn’t directly involved in a claim.

Flexible limits – Most insurance companies offer a variety of cover limits for D&O policies. In some cases, these limits can go as high as £10 million, depending on the size of the not-for-profit.

Protection beyond indemnification – While the governing documents of many not-for-profits require the company to indemnify and defend directors and officers who are sued, leaders shouldn’t expect this protection to be sufficient. That’s because a not-for-profit’s duty to indemnify is only as good as its ability to pay. This means that if the not-for-profit is insolvent or not financially stable enough to cover the legal fees, directors and officers would have to cover these fees themselves.

More Information

Though you may not realise it, board members can be held liable for the actions of the not-for-profit organisations they serve. In order for a not-for-profit to protect its company mission and its board members’ personal assets, D&O insurance is crucial.

Contact us today to find more information and robust insurance policies.

Information provided by Zywave and contributed to by Lisa Langley, (Cert CII) Team Leader, Professional Risks, Cox Mahon Ltd.