Do you own a business or work in a high-risk field? If you do, then you likely want to protect yourself from liability claims. Consider purchasing indemnity insurance, which is a type of professional liability insurance coverage that pays the policyholder for a set of unexpected damages or losses. Indemnifying someone simply means compensating them for a harm or loss that happens. It can help protect you and your business from liability claims related to mistakes, malpractice, or misjudgments. Indemnity insurance is separate from other types of insurance, like general liability insurance or property insurance, that you might already have to protect your business or career. 

Who needs indemnity insurance?

Indemnity insurance applies to business owners or people who work in a high-risk field where making an error can cause harm or loss for the client. These are some professions that generally require indemnity insurance: 

  • Lawyers
  • Doctors
  • Accountants
  • Contractors
  • Architects 
  • Insurance agents
  • Real estate agents or brokers
  • Management companies
  • Investment services
  • Financial advisors or financial planners
  • Information technology firms 

Businesses that offer specialized advice can also benefit from indemnity insurance for professional services and other business liability needs. For example, it’s possible for a financial advisor to make mistakes. Therefore, the financial advisor can benefit from having errors and omissions insurance, which is a type of indemnity insurance policy that protects against clients making negligence, error, or omission-related claims. Doctors can purchase malpractice insurance, which is another type of indemnity protection. 

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What are some types of indemnity insurance? 

Because there are different types of indemnity insurance policies, they can cover various losses. Some common indemnity insurance policies include: 

  • Malpractice insurance – Protects physicians from lawsuits 
  • Errors and omissions insurance – Protects individuals and businesses over lawsuits related to negligence, inaccurate advice, errors, omissions, and misrepresentation
  • Directors and officers insurance – Covers the personal assets of directors and officers from lawsuits related to actions in managing a company 

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What does indemnity insurance cover? 

An indemnity insurance policy will cover your legal defense costs and the amount you owe if a client alleges that your work, services, or advice caused them harm. Indemnity insurance covers a variety of instances including: 

  • Defamation or libel 
  • Breach of confidence or confidentiality
  • Professional negligence
  • Lost or damaged documents
  • Breach of copyright 
  • Lost money or goods
  • Employee cover 

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How does indemnity insurance work?

Indemnity insurance is a form of supplemental liability insurance specific to certain service providers and professionals. The policyholder pays the premium in exchange for the insurer promising to repay the insured party. 

Here’s a list of a few ways to pay for financial losses with indemnity insurance: 

  • Paying the value of the damaged property
  • Repairing or replacing the damaged property 
  • Paying for legal fees for claims 
  • Paying for investigation for claims 

There are different types of indemnity insurance covering different losses. Professional liability insurance indemnifies the policyholder for errors in advice, counsel, or their work. Commercial property insurance indemnifies the insured against losses of inventory, business property, and more. Your coverage will depend on the type of policy you purchase and its exclusions. Most indemnity insurance policies don’t cover intentional damage or illegal actions. 

As a policyholder, you’ll have to contact your insurance provider to open a claim when a loss happens. A claims representative will then assess the damages and coordinate payments based on your policy. When a third party is involved, that party will receive a direct payment, not the policyholder.

Insurance costs for businesses are eligible for a write-off according to the IRS. Because professional indemnity insurance usually qualifies as a business expense, your premiums are tax-deductible. 

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Can you transfer an indemnity insurance policy? 

You’re not able to transfer commercial indemnity insurance because the protection covers more than just your losses. Commercial indemnity insurance lets you transfer the indemnity to a third party if they experience a loss because of your business. In this case, the third party doesn’t need to own their own indemnity insurance policy because your policy protects their losses.

If you’re a business owner, there are times when you can transfer the risk to a third party. If you hire a contractor, you might want to protect them while they’re doing work on your behalf. The contractor could then name you as an additional insured to protect you while they’re doing work for you.   

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How do you purchase indemnity insurance? 

Many insurance companies sell indemnity insurance policies. Here are a few things to keep in mind when buying indemnity insurance: 

  • What types of claims are covered by the indemnity insurance policy
  • How much coverage you think you need
  • How much the premiums cost for the level of coverage you need
  • How long the policy is in effect for
  • The risk profile of your business or profession 

Keep in mind that people in different professions can pay more for indemnity insurance. Doctors, attorneys, or financial advisors are professions insurance companies may deem that riskier compared to a real estate broker, for example. If your insurer views your profession as riskier than others, expect to pay a higher premium because your claim payouts are likely to be higher. Basic indemnity insurance coverage starts at about $20 per month, but those in high-risk industries can expect to pay several hundred dollars a month or more. Other factors that can affect your indemnity insurance premium are your business’s location and revenue, among others. 

Here’s a list of some of the best indemnity insurance providers on the market right now: 

  • The Doctor’s Company – Best for medical and healthcare providers
  • Thimble Insurance – Best for small businesses 
  • Hiscox – Best for realtors
  • Embroker – Best for lawyers
  • Pogo – Best for independent contractors and freelancers 

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Is indemnity insurance worth it?

If you own a business or work in a high-risk profession, you should definitely consider buying indemnity insurance. Making a mistake often leads to far-reaching and costly ramifications. Indemnity insurance can help you avoid draining your financial resources and make it possible for you to stay in business. It’ll also give you and your employees peace of mind knowing that you’re protected against a worst-case scenario. 

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