From property to general liability, there are many types of insurance businesses should have. Although they serve different purposes, they all have one thing in common: they protect the insured company from the full cost of any incurred losses. This is called “indemnity insurance”. Insurance is generally considered indemnity insurance because it covers the cost of compensating another party for losses that they may have suffered during the policy term.
What is indemnity insurance?
Indemnity insurance refers to a contract between the policyholder of insurance and the carrier. It states that the insurance company will compensate the policyholder for any financial losses that occur in the course of a covered claim.
Indemnity is the act of compensating someone for any loss or harm they suffer. Indemnity is also used to protect you from liability in insurance. An indemnity policy covers damages that result from a covered loss.[Looking to get insurance for your business] Take a look at the best insurance providers for different types of policies.
Who needs indemnity insurance?
Although most insurance policies can be considered an indemnity agreement (e.g. malpractice, errors, and omissions), only certain professions are allowed to have indemnity insurance. This insurance is usually for professional service providers who make errors that cause loss or damage to the client.
These are the most common professions required to obtain indemnity insurance
- Doctors
- Accountants
- Lawyers
- Architects
- Contractors
These professionals need professional liability insurance to keep their licenses. However, any business can benefit from indemnity insurance for professional services and commercial property.
A shoe shop experiences a fire in its storeroom. The store loses $15,000 in inventory and the building it leases is damaged by $50,000. A commercial property insurance policy covers the shoe store owner. The store owner is reimbursed for inventory and the building is repaired.
Also read: Business Insurance: Do you know when choosing business insurance
How does indemnity insurance work?
There are many ways to cover financial losses with indemnity insurance.
- Replacing damaged property or repairing it
- Payment of the damaged property’s value
- Payment of investigation and legal fees
Different insurance types will cover different types of losses. Commercial property insurance, for example, covers losses to leased buildings, inventory, business property, materials, and supplies. Professional liability insurance policies protect the policyholder against errors in advice, counsel, or workmanship that result in a third-party loss. General Liability Insurance protects the policyholder against accidental losses that occur during business operations.
Your coverage and exclusions will depend on the type of policy that you have. Indemnity policies generally do not cover intentional or illegal damage.
The policyholder should contact the insurance company to file a claim if there is a loss. The carrier then assigns a claims representative who will assess the damages and coordinate payments according to the contract terms. The payment will go directly to the third party if the policyholder is not involved.
Is an indemnity policy transferable?
Insurance that covers commercial indemnity is not transferable. You, the policyholder, pay the premiums in order to receive the protection. You can transfer the indemnity to third parties if you are not able to cover your losses. In the event of a loss in your business, the policy allows you to transfer the indemnity to other parties.
The insurance policy is not owned by the third party and it doesn’t have to be. Your contract agreement with the insurance carrier protects their losses.
Sometimes, a business owner may want to transfer risk to another party. You may ask a contractor to protect you from business risks while they work for you. To protect yourself while they work for you, you may ask them to have insurance. This will transfer the risk, not the policy.
What does an indemnity policy cover?
Depending on what type of policy it’s, an indemnity policy may cover many types of losses. The insurance carrier will cover the losses as long as the policy covers them.
Examples of what an indemnity policy will cover
Slip-and-fall accidents: Slip-and-fall injuries are covered by general liability insurance policies. They pay for the victim’s medical expenses as well as lost income.
Medical mishaps: An insurance policy for medical malpractice will cover the damages that a patient suffers from a doctor’s error.
Property theft: Insurance on commercial property will cover the cost of replacing any business property, including inventory or computers that have been stolen.
Are all types of insurance based on indemnity?
Although most insurance policies are based on the principle o indemnity, not all policies are indemnity-insured. The most common example is life insurance. Because the loss cannot be definable, the payment is based on an idea of loss and is therefore not a fixed amount.
Also read: The Future of Artificial Intelligence in Insurance
How to choose an indemnity policy
It is important to ensure that you have the right insurance. You should consider the risks that your business faces and determine if you need to have certain types of insurance. Keep in mind that professional liability insurance is required for certain professions to keep their licenses. For a commercial lease contract, you may be required to have general liability or commercial property insurance.
Even though you don’t have to be covered by insurance, it’s worth considering the risk. You could be at risk of slip-and-fall accidents and other third-party claims if your establishment is frequented by foot traffic. Slip-and-fall accidents are typically worth $20,000, so you will need the funds to cover that amount if you don’t have an indemnity insurance policy. You should consider getting insurance if you cannot afford to pay for a claim.
How much does indemnity insurance cost?
The cost of indemnity insurance depends on what type of policy you choose and the industry and revenue of your business. A policy of general liability insurance could be as low as $500 per annum. Professional liability insurance can be more expensive depending on the profession. Companies spend an average of $500 to $1,000 per year on errors and omissions insurance for employees. The property insured is what determines the cost of insurance.
To ensure you have the best coverage for your most serious risks, it is a good idea to talk to your agent about your insurance needs. Compare quotes to save on insurance and get the best possible price.
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