Loading the player...

What is 'Indemnity Insurance'

Indemnity insurance is an insurance policy designed to protect professionals and business owners when they are found to be at fault for a specific event such as misjudgment. Typical examples of indemnity insurance include professional insurance policies such as malpractice insurance and errors and omissions insurance, which indemnify professionals against claims made in the conduct of their business.

Indifference Curve

BREAKING DOWN 'Indemnity Insurance'

Indemnity insurance, also referred to as professional liability insurance, is a supplemental form of liability coverage specific to certain professionals or service providers who offer advice, expertise or services. Unlike general liability or other forms of commercial liability coverage that protect businesses against claims of bodily harm or property damage, indemnity insurance provides protection against claims arising from possible negligence or failure to perform that result in a client’s financial loss or legal entanglement. A client who suffers a loss can file a civil claim, and the professional’s indemnity insurance pays the cost of defending against the claim as well as any damages awarded by the court.

Indemnity Insurance in Practice

Generally, indemnity insurance must be carried by certain professionals involved in financial and legal services, such as financial advisors, insurance agents, accountants, mortgage brokers and attorneys. In dispensing financial and legal advice, these professionals can be liable for negligence or inadequate performance, which is more often than not inadvertent but damaging to a client. In the financial industry, anyone who provides financial advice that leads to the purchase of an insurance or investment product must obtain errors and omissions insurance. Accountants can be found negligent for advising a client on tax matters that result in a penalty or additional taxes.

In the medical field, malpractice insurance is a form of compulsory professional indemnity insurance that protects practitioners from civil claims arising from negligence resulting in physical or mental harm to their patients. A growing number of executives are purchasing indemnity insurance to protect their deferred compensation accounts against company claims or bankruptcy. Other professions and occupations, such as contractors, consultants and maintenance professionals carry indemnity insurance as a practical matter because of their exposure to “failure to perform” claims.

Professional indemnity insurance provides a critical layer of protection for service providers who might also need other forms of liability coverage such as general liability insurance or product liability coverage. Because of the possibility that a claim could be filed after an indemnity insurance policy is terminated for an act that occurred while it was in force, the insured can add an endorsement that extends the coverage to any occurrence.

RELATED TERMS
  1. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the ...
  2. Professional Liability Insurance

    Insurance that protects professionals such as accountants, lawyers ...
  3. Period Of Indemnity

    The length of time for which benefits are payable under an insurance ...
  4. Liability Insurance

    Any type of insurance policy that protects an individual or business ...
  5. Commercial Lines Insurance

    Commercial insurance lines help keep the economy running smoothly ...
  6. Personal Lines Insurance

    Property and casualty insurance products for individuals that ...
Related Articles
  1. Insurance

    Understanding Your Insurance Contract

    Learn how to read one of the most important documents you own.
  2. Financial Advisor

    What Kind of Insurance Do RIAs Need?

    Advisors spend a lot of time discussing insurance with clients but they also need to consider their own coverage needs as small-business owners
  3. Insurance

    What Happens If Your Insurance Company Goes Bankrupt?

    When insurance companies go bankrupt or face financial difficulty, it's bad news for policy holders.
  4. Insurance

    Bundle Your Insurance For Big Savings

    Bundling your insurance can save you money and time. Read on to see how get the most out of multiline insurance discounts.
  5. Insurance

    The History Of Insurance In America

    Insurance was a latecomer to the American landscape, largely due to the country's unknown risks.
  6. Insurance

    Insurance, Excess Insurance and Reinsurance: What's the Difference? (ALL)

    Understanding the differences might help you avoid being overinsured or underinsured.
  7. Managing Wealth

    6 Insurance Policies That Protect the Wealthy

    Here are six types of insurance that the wealthy use to protect their assets.
  8. Insurance

    Homeowner's Insurance Guide: A Beginner's Overview

    Everything new homeowners need to know about insurance to protect their residence.
RELATED FAQS
  1. What is the average return on total revenue for the insurance sector?

    Learn about the three main segments of the insurance industry, and find out what the average return on revenues is for the ... Read Answer >>
  2. Can your insurance company cancel your policy without notice?

    Learn about your rights as an insured when it comes to your insurance policy being canceled, including how to access your ... Read Answer >>
  3. What are examples of the largest companies in the insurance sector?

    Read about some of the largest and most influential companies in the insurance sector, a list that includes Berkshire Hathaway ... Read Answer >>
  4. What are some examples of when insurance bundling is a bad idea?

    Learn about situations where insurance bundling may not be a favorable option. Bundling insurance is often a good idea, but ... Read Answer >>
  5. How do I choose which insurance company to use?

    Picking an insurance company to use is not an easy task, considering the financial crisis of 2008 and 2009. Several financial ... Read Answer >>
  6. Which insurance policies do I really need?

    Your needs for insurance depend on your situation and can't be generalized for everyone, but there are a lot of options available. ... Read Answer >>
Hot Definitions
  1. Treynor Ratio

    A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless ...
  2. Buyback

    The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies ...
  3. Tax Refund

    A tax refund is a refund on taxes paid to an individual or household when the actual tax liability is less than the amount ...
  4. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced within a country's borders in a specific time period, ...
  5. Inflation

    The rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of ...
  6. Merchandising

    Merchandising is any act of promoting goods or services for retail sale, including marketing strategies, display design and ...
Trading Center