Have you heard of the term “indemnity,” and are you now wondering what indemnity insurance means? If yes, then you are on the right page. An indemnity is a contract in which one party agrees to compensate the other for any damages or losses incurred. Therefore, indemnity insurance can assist in protecting a policyholder from indemnity claims in exchange for monthly or yearly premiums.
If a professional like an attorney, accountant, mortgage broker, or business causes loss or damages to a third party, an indemnity insurance policy can assist in covering the settlement and the policyholder’s legal fees. In this article, you will learn all that you need to know about indemnity insurance.
What is indemnity insurance?
Indemnity refers to the obligation to compensate an individual or business for incurred damages or losses. In another way, an insurance company indemnity is a policyholder that restores their prior financial status in the event of a covered event or peril.
An indemnity is a comprehensive form of insurance compensation for any damages or loss. In a lawful sense, it may also refer to an exclusion from liability for damages. The insurer promises to make the injured party whole again for any covered loss in exchange for premiums the policyholder pays. Indemnity insurance is a supplemental form of liability insurance specific to certain professionals or service providers.
How Indemnity Insurance Works
You are the indemnitee, and your insurance company is the indemnitor when you sign up for an auto insurance policy. Your insurance company agrees to pay you off or another party for losses or damages according to the policy’s terms and limits. Your auto insurance agreement makes it your insurance company’s duty to protect you after you are involved in a covered accident.
A car insurance company may cover a policyholder in the following ways that are listed below:
Medical bills
Your liability insurance consists of your insurance company paying for medical expenses incurred by the other driver and their passengers in an accident, fit for your liability limits. If you have any medical payment coverage, that means that your insurance company also agrees to cover the medical bills of you and your passengers.
Property damage repairs
If an accident results in physical damage, and the accident is all your fault, your insurance company will pay an indemnity to the other driver from your liability insurance. You can also get compensation for repairs to your vehicle if you have collision coverage.
Legal fees
Your insurer might cover your legal fees when there is a lawsuit brought by the harmed party from a covered accident if you have liability insurance.
Who should have indemnity insurance?
In most states, you are required to have indemnity from a car insurance company in the form of coverage. However, the external part of the state needs levels of liability, and maintaining a full coverage policy and carrying higher liability limits than the needed minimums can assist in avoiding the financial burden of paying for vehicle damage out of pocket. You may want to consider buying indemnity insurance if one of the following is true:
- You are among an industry association that needs indemnity insurance, or another regulatory body needs it.
- You consult with clients to provide advice to financial advisors, private tutors, fitness professionals, insurance agents, and a lot more.
- You consult with clients to provide designs or frameworks (project engineers, web developers, graphic designers, etc.).
- You are self-employed, and a client needs you to buy indemnity insurance as part of your contract (writers, marketing consultants, and so on.)
- If by any chance you make mistakes in your profession, that would lead to accusations of carelessness (financial advisors, doctors, lawyers, and so on.)
If you know you fall into the categories listed above, then you should consider choosing an indemnity policy.
How to choose an indemnity policy
You need to follow the guides that are listed below for you to choose an indemnity policy for your business. They include:
- Know exactly what you need coverage for.
- Make sure you compare policy limits.
- Read and understand the terms carefully.
- Look at the potential insurers’ reputations.
You can likewise communicate with a broker if you are still in doubt.
How much does indemnity insurance cost?
The cost of indemnity insurance depends on the type of policy you receive and your business’s industry, location, revenue, and other factors. A general liability insurance policy could cost as little as $500 yearly. Professional liability insurance can be more costly depending on your profession. Meanwhile, on average, companies spend in the range of $500 to $1,000 a year per employee for E&O insurance.
What does an indemnity policy cover?
An indemnity policy can cover a lot of types of losses depending on the type of policy it is. As long as the policy covers the losses, the insurance carrier will pay them. This insurance policy assures a return for losses or damages sustained by a policyholder.
Indemnity insurance is planned to guard professionals and business owners when at fault for a specific event like a misjudgment. Indemnity policies provide coverage for various incidents, including:
- Property Theft: Indemnity policies cover losses due to theft of business property, such as computers and inventory, though this is subject to a deductible.
- Slip-and-Fall Accidents: Covered under general liability insurance, this aspect compensates the injured party for lost income and medical expenses incurred due to such accidents.
- Medical Mishaps: These policies cover damages resulting from mistakes made by healthcare professionals, ensuring that patients receive compensation for their suffering.
Can you pass on an existing policy to a new owner?
YES, you may have bought the indemnity insurance, but it is secured to the property. This means that you can hand it over to new owners who will stay to be protected by it. However, if the property value rises, it means that you may have an additional premium to increase the cover. There is no fee for shifting the benefit of cover to the new owner.
