What is Indemnity Insurance?

As a business owner or professional, you may have heard of indemnity insurance and its unique value to protect you in case of unintended mistakes, errors, omissions or claims of harm or loss from your services. An indemnity insurance policy is a specialized type of liability coverage that protects the policyholders against indemnity claims. By securing indemnity insurance, the policyholder is assured that the insurance company will cover the settlement and legal fees in case of loss or damage from a third party. 

An indemnity insurance policy will protect you if you or your business causes harm or loss to others. Professionals such as attorneys, accountants, mortgage brokers, financial consultants and many other professionals use this insurance. Read on to understand whether you should, too. 

Understanding Indemnity Insurance

Indemnity is a contractual obligation to compensate an individual or business for damage or losses they experience. When you take out indemnity insurance, an insurance company will cover losses. Indemnity in insurance means the policyholder has the contractual right to restore their prior financial status.

Indemnity insurance differs from other types of insurance, such as life or liability insurance, in its coverage. In general, liability insurance covers specific liabilities or claims made by the general public. Indemnity insurance is a supplemental liability insurance that covers claims of professional negligence or mistakes. 

Indemnity insurance also differs from life insurance, especially in the type of payout. Life insurance provides a lump-sum payout to the named beneficiaries called a death benefit. In contrast, indemnity insurance covers losses to an insured party in exchange for premiums up to a certain limit. 

Indemnity insurance can also be called professional liability insurance, and the terms are often used interchangeably. However, that is distinctly different from general liability or commercial liability insurance, which protects businesses against claims of bodily harm or property damage. 

Indemnity insurance protects a business against negligence claims because of financial harm resulting from mistakes or failure to perform as promised. For example, a physician working in a hospital may be covered by indemnity insurance. Indemnity insurance will protect the insured doctor if a patient is injured in surgery or because of a pharmaceutical prescription. Indemnity insurance may go by different names based on the type of coverage. 

How Indemnity Insurance Works

Indemnity insurance is a comprehensive form of liability insurance for damages or loss resulting from negligence, mistake or failure. The insurer promises to make the insured party whole by covering losses in exchange for the policyholder's monthly premiums.

Certain professionals or service providers use indemnity insurance as supplemental liability insurance. For example, medical professionals, lawyers, doctors, consultants, accountants, pilots, mortgage brokers, insurance brokers and coaches may use indemnity insurance. 

Types of Indemnity Insurance

The different types of indemnity insurance include: 

• Professional indemnity: Protects all professionals from mistakes or misconduct
• Hospital indemnity: Protects hospitals and doctors from mistakes or misconduct
• Fixed indemnity insurance: Protects on a per-period and per-incident basis
• Construction indemnity insurance: Protects contractors and subcontractors from allegations related to errors in work or design
• Malpractice insurance: Protects healthcare professionals against patient or client lawsuits
• Errors and omissions insurance (E&O): Protects businesses from lawsuits that claim mistakes in professional services

Benefits of an Indemnity Insurance

Indemnity insurance has numerous benefits for businesses and professionals. Most notably, it protects you from losses related to error or regular business practices, including any claims of loss or harm from third parties. Benefits include:

• Prevention of losses in case of lawsuits related to injury, damage or loss for clients
• Peace of mind from coverage

Indemnity insurance is so beneficial that most professionals who offer services, advice, coaching or consulting can benefit from indemnity insurance. Likewise, any profession with the possibility of an allegation of negligence, including doctors, lawyers and financial advisers, should use indemnity insurance. 

Key Factors to Consider When Choosing Indemnity Insurance

Factors that individuals or businesses should consider when selecting indemnity insurance policies include the type and amount of coverage and any coverage limits, deductibles and policy exclusions. 

You may also want to look at customer reviews for the insurance company and understand supplements or riders you could include for more comprehensive coverage. Finally, you can compare the costs and coverage from several insurers to choose the best option for your professional needs. 

Securing Indemnity Insurance

For most professionals, protection from indemnity insurance is necessary for doing business. It offers protection and security, ensuring that your company and financial security are protected regardless of mistakes or omissions. If you need protection and peace of mind, get the best professional liability insurance or business insurance here. 

Frequently Asked Questions