What is Indemnity Insurance? Do You Need It and Types Available
Written by Simon Taylor
What is indemnity insurance?
Indemnity insurance is an important concept, providing a safeguard against financial loss or liability. Its primary purpose is to provide indemnification, or compensate, an insured party for losses or damages they have suffered, under specific terms and conditions of the insurance contract.
Understanding indemnity insurance
The concept of indemnity is fundamental to insurance; it's about restoring the insured to the financial position they were in before the loss. Indemnity insurance doesn't aim to profit the insured, but to ensure that they are not left worse off after a loss.
About professional indemnity insurance
What is professional indemnity insurance?
Types of indemnity coverage
Professional Indemnity
Example Claim: An architect designs a commercial building but overlooks a critical structural element, leading to a partial collapse. The client sues the architect for the cost of repairs and additional damages. In this scenario, professional indemnity insurance would cover the legal costs and any compensation awarded to the client, safeguarding the architect's finances and reputation.
Public Liability
Example Claim: In a retail store, a customer slips on a wet floor that wasn't properly marked and suffers a severe injury. The customer files a lawsuit against the store for medical expenses and loss of income. Public liability insurance would help the store handle legal fees and any compensation due to the customer.
Product Liability
Example Claim: A toy manufacturer faces a lawsuit after several children are injured by a defective toy part. The affected families demand compensation for medical treatments and emotional distress. Product liability insurance would cover the legal costs and any settlements, protecting the manufacturer's financial stability.
Directors and Officers
Example Claim: Shareholders sue the directors of a company for mismanagement and poor investment decisions that led to significant financial losses. This business insurance would cover the legal defense costs and any settlements, ensuring that the personal assets of these individuals are not at risk.
Employer's Liability
Example Claim: An employee working in a factory is injured due to inadequate safety measures. The employee sues the employer for medical expenses, rehabilitation costs, and lost wages. Employer's liability insurance would cover these claims, helping the employer manage the financial repercussions.
Property Indemnity
Example Claim: A fire breaks out in a rented apartment due to faulty wiring. The tenants sue the landlord for damages to their belongings and relocation costs. Property indemnity would cover the landlord's liability, providing for the legal defense and any compensation awarded.
How indemnity insurance works?
Indemnity insurance is a protective shield against financial loss due to liabilities or damages. Whether for an individual professional, a business, or specific situations like healthcare or property rental, it's an essential part of risk management.
Professional indemnity insurance cover guide
Who needs professional indemnity insurance?
Indemnity limits and deductibles
Choosing the right indemnity insurance
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The nature of the business or profession.
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The level of risk involved.
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The potential size of claims.
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Legal requirements in certain professions.
About the author
Simon Taylor is a respected senior industry professional and a Chartered Insurance Broker with over 20 years’ of experience in the commercial sector as an underwriter, broker and director.