Ask these 12 Questions before Buying Directors and Officers Insurance

A company’s decision-makers, that is, the directors, officers and the ones at higher-ups, set the goals and strategies for the future. Many business owners believe that having a professional indemnity policy is enough, but that is not exactly the case. Directors and Officers Insurance is specifically designed for the company’s officers and directors against financial losses if there’s a lawsuit filed against them for a decision they made on the company’s behalf.

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Since we know the importance of D&O insurance, we list 15 questions that you, as an HR manager, should ask before buying D&O insurance.

12 Questions You Should Ask Before Buying D&O Insurance

Question 1: What Does the Policy Cover?

Understand the scope of coverage: wrongful acts, defense costs, settlements, etc.

Question 2: Who Is Covered?

Clarify who is considered a director or officer under the policy.

Question 3: What Exclusions Apply?

Identify exclusions that might limit coverage, such as fraud or intentional misconduct.

Question 4: What are the Limits and Deductibles?

Determine coverage limits and your responsibility for deductibles.

Question 5: What is the Claims Process?

How should you notify the insurer of a potential claim? What's the process?

Question 6: What is Insurer's Reputation?

Research the insurer's financial strength and claims-paying history.

Question 7: Coverage Extensions

Are there additional coverages available, like entity coverage or employment practices liability?

Question 8: Policy Territory

Where does the policy provide coverage? Locally, internationally, or both?

Question 9: Policy Renewal Terms

Understand how premiums might change upon policy renewal.

Question 10: Policy Language and Definitions

Review definitions and wording to ensure you understand the terms.

Question 11: Legal Defense Team

Does the insurer have a network of experienced legal professionals?

Question 12: Premium Costs

Get clear on premium costs and how they relate to coverage and limits.

Remember that D&O insurance policies can vary significantly, so it's crucial to engage in thorough discussions with insurance professionals to tailor coverage to your organization's specific needs and risk profile.

Conclusion

In today’s highly complex legal environment, even a small error can damage the reputation whereas litigation expenses can cause a huge blow to the financial position of the company. Companies, big or small, thus purchase D&O insurance as they realize that lawsuits are expensive, and the costs associated with it are constantly rising. Additionally, if companies do not opt for director and officer insurance, the chances of them being able to attract talented top managerial employees becomes dim.

Written By: PolicyBazaar - Updated: 16 August 2023

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