Why Insurance Mistakes Can Be Costly for Charities
Charities operate with the best intentions, but even the most well-meaning organisations can find themselves in financial and legal trouble due to insurance oversights. Many assume that because they are not-for-profit, they don’t need comprehensive insurance coverage—but this is far from the truth.
Accidents, cyber threats, and legal claims can happen to any organisation, no matter how noble the cause. For example, a charity hosting a community event without public liability insurance could face costly legal claims if someone is injured while setting up for the event. Similarly, a data breach involving donor information could result in financial penalties and reputational damage.
At ACS Financial, we’ve seen firsthand how inadequate insurance can put charities at risk. With over 30 years of experience providing specialist insurance solutions for Australian charities, not-for-profits, and faith-based organisations, we understand the unique challenges these groups face. Below, we outline some of charities’ most common insurance mistakes and how to avoid them.
Not Having Public Liability Insurance for Events & Activities
Many charities assume they do not need public liability insurance because they are not-for-profit. However, this is a risky assumption. Whether you are hosting a fundraising event, a community gathering, or a volunteer-driven initiative, your organisation could be held responsible if someone is injured or property is damaged.
What is Public Liability Insurance?
Public liability insurance protects your organisation in the event of third-party injury or property damage caused by your activities. If someone trips over a cable at your charity event and suffers an injury, or a stallholder accidentally damages a venue’s property, your organisation could be held financially responsible. Legal costs and compensation payments could severely impact your charity’s finances without cover.
Why it matters:
Public liability insurance protects against claims for injury or damage caused by your charity’s activities.
Some councils, venues, and landlords require proof of insurance before allowing events to proceed.
Legal costs and compensation payments could severely impact your organisation’s finances without cover.
How to avoid this mistake:
Always ensure public liability insurance is in place before running any event.
If third-party vendors, such as food stalls or amusement rides, are involved, check their insurance policies.
Review your policy limits to ensure they are adequate for your event’s risk level.
Underinsuring or Overinsuring Property & Assets
Underinsurance is rife among Australian property owners, including landlords. According to the Insurance Council of Australia (ICA), eight in 10 owners are insured for less than their property and its contents would cost to replace.
What is Under Insurance
Underinsurance happens when the policyholder has insurance, but the limits of the policy are not enough to cover the cost of loss or damage to the property. The ICA suggests that a property is underinsured if an insurance policy covers 90 per cent or less of the rebuilding costs.
Determining Limits
Depending on the cover, there are likely to be amounts listed for the building itself and for its contents. Again, depending on the policy and insurer, the amount set out will either be a predetermined figure or a figure nominated by the owner and agreed by the insurer – known as sum insured. Whether a set amount or nominated sum insured, these are the maximums that will be paid. So it’s imperative that they’re adequate.
What’s the Issue with Underinsurance?
When a property is underinsured, if there’s an insured event and the property is damaged or destroyed, the owner may not receive enough of a payout to repair the damage or rebuild. Remember, the figures set out in the insurance contract are the maximum that will be paid. Let’s look at an example…
Say the investment property is insured for $500,000. Tragically, a fire sweeps through the rental and it’s destroyed – a total loss. The insurer sends in an assessor (or loss adjuster) and they calculate that the cost to rebuild the property is actually $750,000. This means the property was underinsured by 50 per cent. The maximum the insurer is going to pay is $500,000 (as that is what the landlord paid for), so the $250,000 shortfall needs to be made up by the landlord.
If a property is underinsured, the owner is basically ‘self-insuring’ the difference. It’s on them to make up any shortfall.
How does a Property end up Underinsured?
Usually in one of two ways.
The first is where the policyholder intentionally underinsures the property. This is usually to save on the premium – the lower the sum insured, the lower the premium (typically).
The second is where the property is underinsured by accident. This usually happens because the owner fails to estimate replacement costs accurately. It’s not hard to do—especially not these days. The cost of repairing and replacing property is steadily going up – the cost of raw materials is increasing, the cost of labour is increasing, the cost of goods are increasing – and it’s easy for estimates to become out-of-date. All costs need to be factored into the sums insured – and reviewed at least annually to make sure they remain current.
Over-insurance – what is it?
It is basically where the property is insured for more than it would actually cost to replace. For example, say you nominate a sum insured of $1 million for the building, but the actual cost to replace it is $750,000.
Why is over-insurance a bad thing?
For one thing, it’s a waste of money. The more a property is insured for, the higher the premium. So, if the property is over-insured, you will likely be paying too much for your policy. You’ll be paying a premium based on a higher figure than you could recoup.
Why can’t I recoup for the total sum insured they nominated?
Most insurers will only reimburse you for the actual cost of the loss you have suffered.
For example;
Say you have insured the property for $1 million. The property experiences a total loss due to a fire. Based on the actual repair and/or replacement costs, the insurance assessor determines that repairing the property to its pre-fire condition would cost $750,000. Your insurance pay-out will be based on the assessor’s value, not the $1 million for which the property is insured. So, in effect, although you have paid premiums based on the property being worth $1 million, it’s valued at $750,000, and that’s all you will get from the insurer. You will not receive the extra $250,000. You’ve paid more for no benefit.
Insurers will also not usually refund any premium overpayment (they won’t reimburse the difference between the higher premium you paid and the actual premium you would have paid if the sum insured had been accurate).
Why do insurers do this?
Many insurers will have a clause in their policy that relates to over-insurance: “if you over-insure, we will not pay you more than it costs us to rebuild, repair, or replace. We will not refund any premium overpaid for over-insuring…”
Regardless of the policy wording, an insurer is generally only obliged to pay-out the value of the property that has been lost or damaged. This is because the policyholder may be tempted to profit from a loss – this constitutes a ‘moral hazard’ for the insurance company.
How to get the sum insured of the property right?
Here are some tips for determining the sums insured
- The sum insured relating to the building should be based on the cost of replacing the building structure itself, its fixtures and other features like sheds, decking, driveways, pool, and fencing.
- Base the building sum insured on current building costs, not on its market value (what the property could sell for) as this valuation isn’t based on replacement costs.
- The sum insured for contents should be based on your contents at the rental – not your tenants’ possessions. Your tenant requires their own contents insurance policy.
- If you own property within a strata complex, check to see what’s covered under the body corporate’s strata insurance so you can work out what needs to be insured separately.
- Use an online calculator such as the Cordell Sum Sure building insurance calculator and the Home Content calculator found on the ICA’s website.
- If you want precise rebuilding figures, get a quantity surveyor or local builder to do a costing.
- Regularly review the sums insured. Replacement costs (both for the building structures and for the contents) change over time, so it’s important to base sums insured on current figures when taking out or renewing your policy.
If you are doing your own calculations
- Do not include the cost of the land, just the property/structures built on it.
- Ensure the calculations are based on current building costs and allow for current building standards to be implemented including risk mitigation requirements (e.g. bushfire, flood or cyclone proofing).
- Factor in structural improvements that have been made to the property, like sheds, pergolas and fencing.
- Include the cost of removing debris, and the cost of architect and council fees.
- Don’t forget GST.
How to avoid this mistake:
Regularly evaluate your property, equipment, and other assets to determine their replacement cost.
Work with an insurance provider experienced in not-for-profits, such as ACS Financial, to ensure your coverage aligns with your actual risk exposure.
Assuming Workers’ Compensation covers Volunteers
Many charities believe volunteers are automatically covered under their workers’ compensation policy. However, in most cases, workers’ compensation only applies to paid employees, leaving volunteers exposed in the event of an injury.
Why it matters:
Volunteers who suffer injuries while working for your charity may not be entitled to compensation unless you have a specific policy.
Without proper coverage, your organisation may face legal claims or be forced to pay medical expenses out of pocket.
How to avoid this mistake:
Check and review your existing policies to ensure your volunteers are adequately covered.
Educate volunteers and staff about what is and isn’t covered under your insurance.
If gaps exist, explore the available options for additional protection.
Ignoring Cyber Risks & Data Protection Laws
Cybercrime is a growing threat to charities, yet many organisations still lack cyber insurance or sufficient cybersecurity measures. Because charities often handle sensitive donor and beneficiary data, they are a prime target for cybercriminals.
Furthermore, If the Privacy Act 1988 covers your organisation or agency, you must notify affected individuals and us when a data breach involving personal information is likely to result in serious harm.
Why it matters:
Data breaches can result in hefty fines for failing to comply with privacy regulations.
A cyber attack can disrupt operations, cause reputational damage, and lead to financial losses.
Phishing scams, ransomware, and fraudulent emails are becoming more sophisticated, making it easier for charities to fall victim.
How to avoid this mistake:
Review your cybersecurity measures and existing policies to see what is and isn’t covered.
Train staff and volunteers on cyber security best practices, such as identifying phishing scams.
Limit access to sensitive data to only those who need it.
Not Reviewing Insurance Policies Regularly
Charities often take out insurance policies and forget about them. However, failing to review policies regularly can lead to gaps in coverage or unnecessary expenses.
Why it matters:
As your charity grows or changes, your insurance needs will also evolve.
You may be paying for no longer relevant coverage or failing to update your policy to reflect new risks.
How to avoid this mistake:
Conduct an annual Charity Insurance Health Check to ensure all policies are current.
Work with an insurance specialist like ACS Financial, who understands the unique risks charities and not-for-profits face.
Keep records of policy expiration dates and renewal deadlines to avoid lapses in coverage.
How ACS Financial Can Help Protect Your Charity
Ensuring your charity has the right insurance coverage doesn’t have to be complicated. At ACS Financial, we specialise in providing tailored insurance solutions for Australian charities, not-for-profits, and faith-based organisations, helping you operate confidently and securely.
For over 30 years, we’ve worked closely with churches, charities, and NFPs, refining our products to offer comprehensive protection that aligns with your organisation’s unique needs. We simplify insurance, making it easier for you to understand your coverage so you can focus on your mission without worrying about unexpected financial or legal risks.
Get a Free 15-Minute NFP Insurance Health Check
To ensure your organisation is adequately covered, speak to one of our specialists today. Whether you’re looking for new cover or reviewing existing policies, we can help you navigate your options and secure the best protection for your charity.
Call us on 1300 646 777 to book today!
With ACS Financial, you can move forward with peace of mind, knowing your charity is protected.