Professional Indemnity Insurance

What Indemnity Insurance is all About

Indemnity Insurance is a common type of Professional Liability Insurance. Some policyholders may be confused over the term “indemnity.” To provide indemnity means to offer protection against a loss. When related to insurance, this means protecting against financial loss. In this case, Indemnity Insurance is designed to protect professionals in the service industry against liability claims due to professional misjudgments. This could be anything from providing inaccurate financial advice to providing a wrong prescription to a patient.

Those losses will more commonly occur when service industry professionals, or someone within their company, face legal claims from current or past clients. Those claims will arise when the client feels either you or your business has provided services that led directly to their financial troubles.

What a client deems a misjudgment or error on your part could fall under many things. It could be due to lawsuits that the client faced as a result of following your advice or receiving your services. Alternatively, a client who believes your service and advice has failed to provide adequate results could attribute this to your company’s errors. This may easily be the case if a former client who has failed to get results seeks a second opinion from a different, competing company that provides conflicting advice.

Who Needs Indemnity Insurance?

Indemnity Insurance was built for businesses that provide professional services and advice. Businesses that provide accounting and other financial services may often have no choice when it comes to buying this insurance. This is because various professional service organizations make owning Indemnity Insurance a requirement for membership. Some professional service organizations consider ownership of this type of insurance as a mark of a company that maintains ethical business practices.

The professional services industry covers a wide range of potential businesses, including:

• Accounting Firms
• Legal Services
• Financial Services
• Architectural Firms
• IT Consultants
• Medical Practitioners
• Investment Firms
• Management Companies

A large number of careers exist within these industries. Chances are if your business provides advice, non-farm-related services or physical construction of some kind, your business likely fits within the professional services industry and would benefit from this insurance.

How Does Indemnity Insurance Work?

Indemnity Insurance works by providing the professional services policyholder with a defined amount of financial protection against claims. Those claims must arise out of issues related to misjudgments, errors, omissions or overall negligence. Indemnity Insurance does not cover claims related to bodily injury or property. Additionally, this insurance does not provide liability against allegations related to yours or an employee’s purposefully misleading or unethical business practices.

This insurance will cover the cost of mounting a legal defense against a claim, as well as payout toward potential claims that are successfully rendered against you or your business. Depending on the size of the indemnity, it’s possible that Indemnity Insurance will only cover part, but not all, of the awarded amount.

For example, a private medical practice that faces a medical malpractice lawsuit may be covered under an Indemnity Insurance policy. Medical Malpractice insurance can exist as a form of Indemnity Insurance, as many medical practitioners are considered within the services industry. A doctor sued for medical malpractice may lose the claim filed against him, but may have his legal expenses and the claim paid through an Indemnity Insurance policy.

What is a Period of Indemnity?

A period of indemnity is defined by the length of time you are covered under your Indemnity Insurance. This is not always determined by how long you are paying premiums. Some Indemnity Insurance policies have periods of indemnity that extend after the last premium payment and may include a retroactive clause to include claims that arise from issues that occurred before the start of coverage. Many indemnity policies can be purchased with an endorsement that extends the period of indemnity.

How much does Indemnity Insurance Cost?

Costs for this insurance can be anywhere from around $20 per month to several hundred dollars a month. Indemnity Insurance is extremely common and usually inexpensive for most professional service industries. However, specific industries may find that the cost of the insurance is higher due to increased risks. Medical professions, for example, may find that Medical Malpractice Insurance, a type of Indemnity Insurance, costs more than what an IT consulting company might pay. Different liability amounts can be purchased, so costs can vary based on how much liability coverage your business requires.