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D&O Insurance

4 Benefits of D&O Insurance for Small Business Owners

By January 23, 2022February 16th, 2022No Comments

Are you a small business owner in India? Do you need insurance that will protect the assets of the company and also the assets of your directors and officers? If the answer to both the questions is YES, then you need a D&O insurance policy.

The board of directors plays a prominent role in corporate governance. It is responsible for directing and overseeing the business and management of the company. Considering this pivotal role, directors are considered as fiduciaries in that they are required to act in the interest of various constituencies in a company rather than for personal or self-interest or gain.

Directors’ duties and liabilities have garnered substantial attention in India lately. The new Companies Act, 2013 (the 2013 Act) is a landmark piece of legislation that clarifies, redefines and enlarges the ambit of directors’ duties and liabilities. This legislation is being supplemented by revised corporate governance norms that have been announced by the Securities and Exchange Board of India (SEBI) with a view to creating consistency between the 2013 Act and SEBI’s governance norms that apply to public listed companies. 

D&O benefits small businesses in multiple ways

Directors and Officers (D&O) Liability Insurance provides for financial protection in the event of a claim alleging a wrongful act in a managerial or supervisory role of the director, or an officer in the organization.

“Wrongful Act” means;

any actual or alleged misrepresentation, misstatement, misleading statement, error, omission, defamation, negligence, breach of warranty of authority, or breach of duty means.

There are numerous ways in which D&O benefits small businesses, located across India. It is good to know about the advantages of the policy before buying it. The industry has witnessed many small businesses purchasing the D&O policy in recent years.

Indian SME sector is waking up to D&O insurance

There has been a rapid increase in the popularity of the D&O policy among small businesses, especially in the SME domain. Companies are now eager to know more details about the policy and avail its benefits to the fullest extent, in times of financial hurdles and crisis.

Suitable for directors and officers

The D&O insurance policy from a reliable insurer is perfectly suitable for the directors and officers of small business. The benefits help the business to hold its position in the industry and remain competitive. It helps in the long run. 

Understanding the applicability of the D&O

It is a priority to understand the extensive applicability of a D&O insurance policy, in the case of a small business facing a lawsuit. You need to go through all the relevant documentation that gives clear ideas about the applicability of the insurance.

Reading the terms and conditions

It is also hugely important to read the terms and conditions, as mentioned in the policy document of the insurance, along with knowing the benefits of the policy. When you are sure about every aspect of it, there is no problem in recommending the policy to the company.

Check out the list of exclusions

The small business needs to mandatorily check out the list of exclusions. Exclusions are cases in which the applicability of the D&O insurance policy is not valid. The small business should be extremely aware of the list of exclusions.

Benefit 1: Fighting lawsuits comfortably

A shareholder or customer can file a lawsuit against the directors/officers of the small business, alleging a wrongful act or an act of misappropriation of data or any other relevant reason like corporate manslaughter or ill returns on investment. A third party vendor can also file a case.

The small business needs to remain prepared to fight the lawsuit. The D&O insurance effectively takes care of the legal expenses to fight the case. The small business does not have any trouble whatsoever. 

Benefit 2: Attracting good talent 

When a small business wants to grow at an accelerated rate, it needs to have a top-quality human resource. The company has to attract good talent from the market. How can it be done? One of the ways is getting a D&O policy from a reliable insurer. 

When talented people are aware of the fact that they can confidently take decisions in the company, as they have backing of insurance coverage for lawsuits, they feel protected. They find the company attractive to work for. So, the presence of insurance is able to attract excellent talent from the market. 

Benefit 3: Getting investors

Yet another impressive benefit of the D&O insurance policy is that it gets investors for the small business. The insurance provides a more corporate touch to the company. The small business becomes more professional with the back-up of the D&O. The investors take note of this. 

Angel investors become more interested in putting money in the business, when they are aware that the assets of the company or its higher management will not be at stakes when the company, by any chance, faces a lawsuit. Hence, a small business can easily strengthen its prospects by availing the D&O insurance policy.

Benefit 4: Shielding the assets of the directors/officers

The D&O insurance policy is incredibly effective in saving the personal assets of the directors/officers of the small business. During lawsuits, the insured does not have to remain bothered about digging through personal assets to cover the costs of an attorney and legal experts. 

The insurance has provision for the coverage of legal expenses. There is no need to pay the fees of an attorney. The clauses of the policy clearly mention the features that protect the personal assets of the directors/officers. The insurance creates a safety net.

Explore the offers from a good insurance broker

It is wise to study the beneficial features of different D&O policies, by consulting a renowned insurance broker like PlanCover. The agency has expertise in the insurance market of India. It also has the required certification from IRDAI. Get in touch with it. 

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