Will Anuj have to pay damages out of his pocket
He would have to do that if the claimant wins the suit. However, if he had taken a professional indemnity insurance for himself as well as his staff, the insurance company might have taken care of the payment for this liability.
What is professional indemnity insurance
Every business is associated with risk. When you are in a profession that gives personal services or advice, you are liable for any consequences arising out of it. For example, if you are a doctor and medical negligence on your part has caused a serious after-effect to your patient, you are liable to pay him compensation if he files a law suit. Similarly, an architect can be sued for a defective construction; a chartered accountant is liable to compensate financially for an omission or an error in accounting accuracy. The professional indemnity insurance offers protection for professionals from the public liabilities that are likely to arise from a professional negligence or an unintentional error in the services or advice rendering. The financial liability of such a risk can be huge depending on the nature of damage, and can severely dent the pocket of any professional.
Who can opt for professional indemnity insurance
Any working professional who is rendering any kind of services, including advisory services, can buy the professional indemnity insurance. It is not limited to doctors, CAs or lawyers, but can be extended to IT professionals, creative directors, and architects, among others. Companies can take the professional indemnity insurance for their employees as well. In Anuj’s case, if he had taken the professional indemnity insurance for his creative director, he would have been protected from the liabilities resulting from his deficient service, if it is proven as unintentional. There are different types of public liability insurances-professional indemnity insurance is one among them. If you belong to any vocation other than professional services, you may have to choose other types of public liability policies suiting your nature of business.
The Coverage and premium calculation
Professional indemnity insurance safeguards you against financial losses arising from any damages that your client has sought. The coverage offered is based on the sum insured you choose. The sum insured in all professional liability plans is called limit of liability. Since the claim amount in such plans is usually unknown, insurers set a limit to their liability which they offer to the insurance seeker. Any excess liability over this limit will need to be borne by the policyholder. The policyholder will have to claim the insurance, providing all documentary evidences, when he or she is faced with a law suit. The insurer releases the payment in favour of the receiver, and not to the insured. Claim rejections can happen in case of intentional defaults or poor service if the same is proven in a court. The premium for this type of insurance is based on the sum insured you choose. The premium charges for a professional liability policy takes into account various factors like your profession, experience, your income, jurisdiction and other essential parameters as per the insurance company’s norms. The premiums charged usually range between 0.2 per cent to 2.5 per cent of the limit of indemnity fixed by the insurance company.
What kind of insurance companies can offer this policy
All general insurance companies offer specialised indemnity insurance for professionals. Private insurance companies as well government-backed companies like New India Assurance, United India, National Insurance offer various plans to choose from when it comes to picking a professional indemnity insurance policy. There are specialised plans for doctors, lawyers and other working professionals. Choosing one specifically designed for your profession will be ideal to meet your requirements. With growing awareness of working professionals, professional indemnity insurance plans are gaining popularity. Depending on your risk profile, you can opt for a professional indemnity insurance plan rather than risk your career, name and finances. The only tricky issue in this policy is properly estimation of the policy amount required. If you under-insure your potential damages, you may end up shelling out the rest from your own pocket. If you opt to insure yourself for huge sum, you would end up paying higher premiums. So you could consult a registered financial planner to assess the risk potential of your business and come out with a proper estimation. (The writer is the CEO of BankBazaar.com)
