Directors and officers insurance

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Employing executive-level members of staff can have many benefits for a business. For a start, it gives the business owner someone to share the responsibility of running the business with. But with this added responsibility comes added risk. It’s for this reason that you may want to consider taking out directors and officers insurance, as it can be essential in protecting your business against the risks that come with having high-level employees.

What is directors and officers insurance?

Directors and officers, also called D&O, insurance is a policy designed to provide protection for company executives and managers in the event that they’re accused of committing wrongful acts while carrying out their roles. Such wrongful acts could include:

  • Breach of duty or trust - Failing to properly carry out expected or required duties
  • Misleading statements - Making statements, forecasts or promises that are misleading or false, or dishonestly concealing facts
  • Errors and omissions - Providing poor, incomplete or incorrect work, or failing to deliver promised services.

High-level employees that are eligible for protection under a directors and office insurance policy could include:

  • Managers
  • Executives
  • Directors
  • Trustees (e.g. for charities)
  • Officers.

If an executive level employee in your business is accused of a wrongful act, you may be unable to afford legal defence or compensation for the executive or manager. That’s where directors and officers insurance comes in.

A successful claim on a directors and officers insurance policy could reimburse you for costs such as legal defence, investigation and settlement. The protection that D&O offers can vary between policies, so be sure to check the exact wording of any insurance you purchase.

D&O insurance exceptions

There are a number of circumstances that are not typically covered under a D&O insurance policy:

  • If the law is broken: If an executive employee wilfully commits fraud.
  • Claims against a company as a whole: Traditionally, damages must be attributed to the negligence of one individual. However, some D&O policies do now provide cover for the company accused as a whole.
  • Cover of another policy: If the claim can be defended under the cover of another insurance policy, then directors and officers insurance will not provide protection.

Who needs directors and officers insurance?

D&O insurance is not a legal requirement, although any corporate business whose structure includes executive-level employees may want to consider putting some form of directors and officers insurance policy in place.

D&O insurance is usually less relevant to businesses such as partnerships or sole traders. This is because these types of business are unlikely to employ the kind of executive level staff that a directors and officers policy provides protection for.

Do I need directors and officers insurance?

If a claim is made against your company executives, the potential repercussions could leave your business financially vulnerable. If the size and structure of your business means this is a scenario you can envisage, then D&O insurance is certainly something you should consider.

As with many insurance-related decisions, your attitude towards risk is a major factor that influences which policies you decide to include in your package. It’s a good idea to assess how likely it is that your business will come under threat from a claim made against your directors or officers, consider the financial implications of not having the relevant protection in place, and then weigh it all up against the cost of a D&O insurance policy.

Directors and officers insurance cost

Because your business’s circumstances – and the roles and responsibilities of your employees – are likely to be different from another company, there’s a good chance that the insurance cover you need will differ too. Because the price of your business insurance will be influenced by the terms and extent of protection provided, it’s difficult to determine how much your directors and officers cover will cost without an individual analysis of your needs.

The best way to find out how much directors and officers insurance would cost your company is to get a bespoke quote based on your business’s needs. Make It Cheaper’s team of insurance experts can help you to decide if directors and officers cover is right for you, and can include it in a bespoke policy to meet all of your business’s requirements. Call 0800 144 4808 to get a cheap directors and officers insurance quote today.

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