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Fiduciary Insurance versus D&O Insurance | Understanding the Difference

By January 8, 2022No Comments

Both Fiduciary Insurance and D&O Insurance offer benefits to the company. There are well-defined coverage aspects related to both varieties of insurance policies. As an officer or senior manager who has the responsibility to buy or recommend the insurance policy for the company, it is very important to know the differences between these categories. 

It is best to know about the meanings and features of both types of insurance policies to understand the differences. Read on.

The meaning of Fiduciary Insurance

A Fiduciary Insurance policy is a policy that is meant to protect businesses against mismanagement claims. Any person associated with the management of the company, directly or indirectly, benefits from the insurance policy, under certain terms and conditions. Fiduciary liability insurance protects businesses and employers against claims resulting from a breach in fiduciary duty. 

When does Fiduciary Insurance come into play?

The policy protects parties against liability for managing or administering employee benefits plans. Employee benefit plans, managed and administered by fiduciaries, generally fall into two broad categories: retirement plans and welfare plans. There should be a legal association of the management of the company with the business in order to be eligible for the coverage of the Fiduciary Insurance.

What are the particular benefits of the Fiduciary Insurance?

As an executive responsible to purchase the insurance or gather information about it, it is crucial to know about the broad benefits of the policy.

For example, the insurance policy can give access to specialized services of a defence counsel. Also, it may cover partial or full costs for legal defence. Furthermore, insurance plays a major role in covering the settlements. 

Who requires Fiduciary Insurance?

You might be wondering about what type of company requires the insurance. Any company, even a small business house, which provides a health care or retirement plan to its employees, need to get Fiduciary Insurance. It can be a publicly traded company or a private corporate house or even a new start-up. Non-profit organizations are also eligible for it.

Fiduciaries should be well-defined

It is hugely important to define the Fiduciaries, the subjects who are insured by the policy. The company should clearly signify the Fiduciaries in the policy document before striking a deal with the insurer. 

Some common mistakes of Fiduciaries

There can be some common mistakes committed by the Fiduciaries that may help the opposition to get their claims. It is better to have clearer ideas about such mistakes to stay alert beforehand:

  • Poor performance of the investment made
  • Several investment options in a disorganized format
  • High fees for recordkeeping
  • Not sticking to the plan documents
  • High expenses associated to fund offerings 

How can the Fiduciaries avoid mistakes?

There are some simple steps that the Fiduciaries can apply to avoid the mistakes mentioned before. A transparent and diligent approach is more than enough in this regard.

The Fiduciaries need to sincerely and expertly monitor the performance of their funds, along with recordkeeping fees. Also, it is essential to review the plan documents. Consulting with certified outside experts is also important to avoid the mistakes and maintain a strong stand.

People whom a D&O Insurance Policy covers

Employees who currently are in managerial roles in a company are covered by the D&O Insurance. The insurance also covers the past managers, within the framework of a set of rules and regulations. Current and past managers can avail the benefits of the insurance. 

Things that D&O Policy covers

If you are the Accounts Head or lead the HR Department of a company, also in charge of selecting a suitable D&O Insurance policy, then you need to know about the distinct things that the policy covers for various businesses in the industry.

  • Any loss experienced by the company due to misstep by a stakeholder
  • Loss arising from the claims made against the Directors and Officers of the company
  • Legal expenses during the prosecution of the Directors and Officers
  • Shareholders’ expenses due to the claims
  • Indemnity to the legal heirs 

The broad varieties of coverage of D&O Insurance

It becomes simpler to choose an appropriate insurance policy when you are aware of the broad types of coverage of D&O Insurance. There can be 3 distinct cases under practical consideration. Any one of the three cases can occur. The insurance plays its role accordingly.

  • When there is a situation to pay the third parties for their claims, the insurer pays 
  • When the company pays the third parties, the insurer pays the company 
  • When the business is a public listed company, the insurer takes care of the related expenses within the regulatory framework 

The things that D&O Insurance does not cover

It is equally crucial to know about the things that D&O Insurance does not cover. The knowledge helps to understand the policy document more clearly. Here is a short list of such things that you can go through.

  • Any kind of fraud or series of fraudulent activities
  • Any kind of dishonesty
  • Any form of embezzlement
  • Any misappropriation in the profits of the company
  • Claims that date back to a period before the purchase of the policy
  • Claims pertaining to war
  • Claims pertaining to copyright infringement 
  • Claims against illegal activities
  • Claims pertaining to violation of any law 

Read the policy documents thoroughly

Whether you purchase the Fiduciary Insurance or D&O Insurance, it is extremely important to go through each line of the policy document. There should not be any doubts in your mind about buying the policy. Read thoroughly the terms and conditions of the insurance policy. You need to have clear ideas about the dates. Also, you should be aware of the coverage.

Know about the benefits

The benefits from Fiduciary Insurance are more specific in nature. On the other hand, the benefits a company or business can avail from D&O Insurance are a bit broader in perspective. In these cases, too, you should have very good ideas about the features.

Buy Fiduciary Insurance and D&O Insurance from a top broker

Get in touch with PlanCover, a highly reputed insurance broker serving a wide range of businesses in the Indian market, to buy suitable insurance policies that practically benefit your company. 

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