Indemnity insurance is a contractual agreement in which one party guarantees compensation for actual or potential losses or damages sustained by another party. Most commonly, it is an insurance policy designed to protect professionals and business owners when found to be at fault for a specific event such as misjudgment. Typical examples of indemnity insurance include professional insurance policies like malpractice insurance and errors and omissions insurance.These special insurance policies indemnify or reimburse professionals against claims made as they conduct their business.
BREAKING DOWN 'Indemnity Insurance'
Indemnity insurance, also referred to as professional liability insurance, is a supplemental form of liability insurance specific to certain professionals or service providers. The professionals provide counsel, expertise, or specialized services. Indemnity insurance is unlike general liability or other forms of commercial liability insurance that protect businesses against claims of bodily harm or property damage. Indemnity insurance protects against claims arising from possible negligence or failure to perform that result in a client’s financial loss or legal entanglement. A client who suffers a loss can file a civil claim, and, in response, the professional’s indemnity insurance will pay litigation costs as well as any damages awarded by the court.
Indemnity Insurance in Practice
Certain professionals must carry indemnity insurance. Examples include those involved in financial and legal services, such as financial advisors, insurance agents, accountants, mortgage brokers, and attorneys. When dispensing financial or legal advice, these professionals are potentially liable for negligence or inadequate performance despite the intent of goodwill. In the financial industry, a professional who provides financial advice that results in the purchase of an insurance or investment product must purchase errors and omissions insurance (E&O). As an example, accountants may be found negligent for advising a client on tax matters that in turn result in a penalty or additional taxes.
In the medical field, malpractice insurance is a form of compulsory professional indemnity insurance. Malpractice insurance protects medical practitioners from civil claims arising from negligence which result in physical or mental harm to patients. A growing number of executives are purchasing indemnity insurance to protect their deferred compensation plans against company claims or bankruptcy. Other professions, such as contractors, consultants, and maintenance professionals carry indemnity insurance as a practical matter due to their exposure to “failure to perform” claims.
Professional indemnity insurance provides a critical layer of protection for service providers. Often these professionals might also need other forms of liability coverage such as general liability insurance or product liability coverage. Indemnity policies may also carry an endorsement. An endorsement extends coverage to acts that occurred during the life of the policy even if the policy is no longer in effect.
Top 4 FAQs About Professional Indemnity Insurance
Having insurance in place is all about covering your areas of risk and if you provide advice or services as part of your job, you may need to consider professional indemnity insurance. So, what’s indemnity insurance all about? To help un-complicate the world of professional indemnity insurance, we’re here to answer some of our most commonly asked questions about this form of cover.
1. Who needs professional indemnity insurance?
No, it’s not just for doctors and lawyers. If you offer professional advice or services as part of your day to day work, chances are that you’re going to need the financial protection which comes of professional indemnity insurance. If there is an act, error omission or breach of your professional duty which has led to damage or loss to a third party, you’re leaving yourself open to a costly claim which is why you need to have indemnity cover in place.
2. What does professional indemnity insurance cover?
The cover offered by professional indemnity insurance will depend on the individual policy but any policy will be designed to protect you financially if you’re found liable following an indemnity claim by a third party, including the cost of legal bills. There will be an agreed sum insured amount attached to your policy which will be the maximum amount your insurer will pay. With that in mind, speak to your insurance broker so you can be confident that you have the right level of cover.
3. Is professional indemnity insurance compulsory?
For some professionals, it’s compulsory for you to professional indemnity insurance in place as per government regulations or industry standards. For many other professions, indemnity cover isn’t compulsory but it’s common sense to have it in place as it offers you peace of mind that you’re protected financially if you find yourself on the receiving end of a claim.
4. How much will professional indemnity insurance cost?
The cost of your indemnity cover will depend on a number of factors including the type of work you do, the level of risk involved, the number of employees you have and the level of cover you require. The insurer will assess your situation and then let you know how much your premiums will be. Remember that a cheap indemnity policy may mean that you’re not getting the level of cover you require so don’t jump at the lowest price – read the fine print first.
For advice about professional indemnity insurance which is specific to your situation, speak to your insurance broker today.