Indemnity insurance explained

We breakdown indemnity insurance and why it matters for your small business. Learn more with our indemnity insurance guide.

March 16, 2020

What is indemnity insurance
Who needs it
How it works
What it covers
How much it costs

When you’re considering insurance policies to protect your small business against any possible claims, it’s important to get familiar with the kinds of policies you might want to purchase.

Imagine, for example, that you’re a catering company owner who has taken out a basic insurance policy. With your general liability insurance policy, you know you can be covered if during the event, one of the guests burns their mouth on a hot menu item. Likewise, if spilled wine ruins an attendee’s angora sweater dress and they name you for the third-party property damage, you will have coverage.

But what if you’ve failed to keep the food kosher, and some of the high-profile guests can’t eat? If your client fails to close a business deal with said guests, they might sue you. Would you be covered in that case?

The answer: only if you have indemnity insurance, also called professional liability insurance.

What is indemnity insurance?

Professional indemnity insurance is a type of insurance that can help protect you from claims due to error or negligence relating to your business. This guide is designed to explain what it is, and how you can determine if you need this kind of coverage.

Professional indemnity insurance protects you in the event of financial loss by a third party. More specifically, it’s an agreement for one party (in this case, an insurance company) to offer protection to another party (in this case, a small business) if they suffer losses or damages.

How is an indemnity insurance plan different from other insurance policies? It comes down to the difference between general liability insurance and professional liability insurance. In short, an indemnity policy is a synonym for professional liability insurance. Let’s take a look:

General liability insurance can help to protect you if your clients or third parties suffer bodily injury, incur medical costs, or have their property damaged. Whether you’re a personal trainer who wants to be protected in case of a client’s shin splint or a cafe owner who knows someone could always slip and fall after a coffee spill, general liability insurance is key to protecting your business.
Professional liability insurance can protect you if your clients suffer a financial loss as a result of errors you make in your judgment or your services. Let’s think back to the example of the personal trainer: if your client happens to be a saleswoman who’s out of wages for two weeks during her recovery period, she might also sue you in civil court for professional negligence.

The main difference? General liability insurance only applies to third-party claims of bodily injury and property damage. Professional liability insurance can help cover you in case of a wider array of errors or omissions that might land you in civil court.

With Thimble, you can take out both kinds of insurance at an affordable rate, providing better protection against a wide spectrum of liability claims, the kind of stuff that happens every day in small business.

Who needs indemnity insurance?

If your business relies on your specialized knowledge, and you provide advice, expertise, or services related to that knowledge, you probably want professional liability insurance in addition to general liability insurance.

Some professions always require indemnity insurance:

Doctors and other healthcare professionals in clinical settings must carry malpractice insurance in case their patients file civil claims against them.
Accountants and other financial services professionals must carry errors & omissions insurance in case their clients make claims that errors or negligence have led to financial losses.

In addition, professionals in the following fields often take out this insurance, too:

Consultants
Fitness instructors
Maintenance professionals
Lawyers and other legal service professionals
Architects

Long story short, if your clients might accuse you of “failure to perform,” breach of contract, or of any other error or omission, you probably need indemnity insurance, too.

How indemnity insurance works

Professional liability insurance is a must-have for many small business owners. So how does it work in practice?

When you take out an indemnity insurance policy with Thimble, you select a policy limit of $1 million or $2 million dollars. This is the amount you are insured for.

When a client files a claim of negligence, errors, or omissions, your indemnity insurance can help to cover the costs of your legal fees and any potential payout to the client up to your policy limits.

It’s important to know, however, that indemnity insurance doesn’t protect you against each and every claim. If you, your employees, or your subcontractors intentionally misled your client, you wouldn’t be covered.

For example, say a hairstylist recommends a specific shampoo to a customer and they turn out to have a severe allergic reaction. If that customer had to skip an important work conference because of it, which negatively affected their career, then having indemnity insurance coverage could be beneficial. However, if that hairstylist had known about this allergy and still recommended it, this would be considered intentionally misleading.

What indemnity insurance covers

In today’s litigious environment, a civil case can be expensive. Whether you’re an interior designer who delayed a small business’ move-in date or a DJ whose vulgar choices sent potential investors fleeing your client’s dancefloor, you could find yourself responsible for all of the following in the event of a civil case:

Legal defense costs
The cost of any investigation
Premiums on court-mandated bonds
The cost of any settlement or payout to the client

Depending on your policy limits, your indemnity policy might help to pay for all of or a portion of these costs.

How much does it cost?

It’s more affordable than ever with flexible, on-demand coverage from Thimble. Thimble’s General Liability and Professional Liability Insurance policies only work when you do. That means you can select from hourly, daily, or monthly policies.

The total cost of your insurance will be calculated based on your ZIP code, the specifics of your business, and the policy limits you select ($1 million or $2 million). With a $2 million policy limit, you maximize your potential coverage in the face of civil claims.

With Thimble, you can also add as many Additional Insureds as you need to your insurance plan and make changes whenever you like. That way, you’ll know exactly how you’re protected. Thimble puts total control over your insurance back in your hands (literally—we’ve got an app).

Protect your business with an indemnity insurance plan today. Get a free quote in less than 60 seconds, get insured, and get to work.

Sources:

Investopedia. Errors and Omissions Insurance (E&O)

Our editorial content is intended for informational purposes only and is not written by a licensed insurance agent. Terms and conditions for rate and coverage may vary by class of business and state.

Insurance 101

Premise liability insurance 101

Also known as “slip and fall insurance” premise liability involves personal injury on your property. But an injury doesn’t mean you’re liable. We explain the nuances in this guide.