A corporate entity needs D&O insurance. The policy protects against financial liabilities. There are other benefits, too. Businesses across India have started understanding the importance of the insurance policy. It helps the company to grow in the long run. The policy provides the business a strong security net.
Choose a suitable insurance product
It is essential for a company to select a suitable insurance product. There are many offerings in the competitive market. The features of the D&O insurance policy should match with the specific requirements of your business. There should not be any confusion, anywhere.
The insurer should be reliable
Keep in mind that the insurer you choose should have goodwill in the market, especially selling insurance to small businesses in India. It can also be a reputed broker. It is important to buy the D&O policy from a broker that has certification from IRDAI.
It is also crucial to check out the exclusions
The insurance policy is not applicable in certain cases. It should be a priority to check out the list of exclusions. It gives you clear ideas about availing the wide ranging benefits of the policy. The deal remains transparent.
Importance of D&O insurance
The importance of D&O insurance policy is profound. There are numerous advantages. The policy document clearly enlists the various benefits that a business can avail. It can be a public or private company. The entity can be an NGO, too. The policy adds value to the company.
Importance 1: Providing legal expenses
One of the main functions of the D&O insurance policy is covering the legal costs when the directors/officers face a lawsuit. The lawsuit can be from an employee, a shareholder, a competitor company, or a third party vendor.
The nature of lawsuits can vary. There can be lawsuits that are small in scale, in terms of claims, mainly filed by an employee. On the other hand, there can be lawsuits with huge claims, usually filed by the shareholders.
The company has to hire an attorney to fight the lawsuit. The insurance pays the service fees of the attorney.
Importance 2: Attracting potential investors
A company has an objective to grow. The concerned company requires investment to strengthen its prospects in the competitive environment. When the company has D&O insurance policy, it is in a better position to attract investors.
The investors will be assured of protection of their funds in situations of countering lawsuits. The policy will shield the funds of the investors. So, there will be no risk in funding the company. The D&O insurance policy essentially covers the risk of investment, with clear management strategies. It provides more trust to the potential investors.
Importance 3: Some protection during bankruptcy
When your company files a bankruptcy, the insurance has a major role to play. You can rely on the features of the policy to avail the required benefits. Even after filing a bankruptcy, the directors/officers of the company might face the corporate risk of facing a lawsuit.
After the bankruptcy, the company, in no way, indemnifies the directors/officers. The D&O insurance policy comes to the rescue. A top-rated D&O policy will effectively respond to the situation. The assets of the directors/officers will get the necessary protection.
A traditional D&O insurance covers natural persons (individual directors & officers) and corporate entities. If there are claims against the company and individual insureds that have triggered (pre-bankruptcy) or do trigger (during bankruptcy) the insurance policy and its proceeds may become an asset of the debtor’s (the company’s) estate. Directors and officers may need to petition the bankruptcy court for access to such insurance proceeds to pay their defense costs.
It is very important that the D&O policy has a “Order of Payments” provision. This provision is an indication to the court that: policy first and foremost protect individual directors and officers; and then followed by with the payment to the company.
Importance 4: Liability coverage for cyber breaches
Cyber breaches mainly mean data thefts or inappropriate access to databases by unwanted sources. The customers can file lawsuits against the directors/officers when there are cyber breaches. Even an investor can file a lawsuit. The main target is the higher management of the company.
The company needs to hire an experienced lawyer to fight the lawsuit and get rid of the allegations. So, there are considerable legal expenses to tackle the lawsuit.
Importance 5: Attracting better talent
Do you know that when a company has a D & O insurance policy, it is in a better position to hire talents from the industry? It becomes easier for your company to get the attention of skilful management executives. They will be sure that their personal assets will not be at stakes in situations when they face a lawsuit.
Fresh talent will prefer the company due to the safety net of the D&O insurance policy. When management officials know that the policy will cover them, they will be more loyal to the company. It helps in moving the business forward.
Importance 6: Protection against company assets
Another crucial benefit of the D&O insurance policy is protecting the assets of the company. Whether it is a private enterprise, public company or an NGO, the clauses of the policy create a strong safety net that shields the assets of the company.
During lawsuits, the company does not have to dig through its assets to cover the legal expenses and other miscellaneous costs. The insurance effective takes care of the details. The management of the company does not have to bother about it. The insurance helps the company to remain stable.
Read about the benefits on the policy document
It is a good idea to thoroughly read the policy document of the insurance that you plan to buy or recommend to a company. The importance of the policy is clearly explained in various sections of the document. You will get relevant information from the document.
Discuss the applicability of the policy with the insurer
It is extremely crucial to discuss the various sides of applicability of the D&O insurance policy with the insurer. Do not hesitate to place your queries about the functional features of the insurance policy. Clear all possible doubts about the policy.
Give a call to a top-rated insurance broker
You can call a reputable insurance broker to know more details about D&O insurance policy. PlanCover has excellent expertise in selling a wide range of D&O insurance policies to various businesses in India. You can get in touch with it to know about the policy.