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Madhu Kapparath/Mint
Madhu Kapparath/Mint

De-jargoned: Professional indemnity cover

It covers losses to clients on account of negligence in discharge of professional duties.

The latest rules announced by the Insurance Regulatory and Development Authority (Irda) on banks as insurance brokers and insurance web aggregators mandate a professional indemnity cover for these entities. That’s because as service providers they are accountable to the customers for the insurance advice they give and run the risk of a lawsuit if they err. Having a professional indemnity policy would insulate them from the financial repercussions of a lawsuit. But this policy is not limited to insurance brokers alone.

What does it cover?

A professional indemnity policy covers losses to clients on account of negligence in discharge of professional duties. It can be bought by any person or entity that can be held accountable for the services they offer.

This cover is popular among doctors and is increasingly getting bought by other classes of professionals such as lawyers, chartered accountants, architects and engineers.

As a service provider, you get paid for the service you provide. So someone who avails that service reserves the right to question you if you fail to deliver and drag you to court for it. Your professional indemnity cover kicks in here. The policy pays for the amount of claim that arises if you lose the case filed against you; it also pays for the legal fees.

The policy doesn’t cover any deliberate act of commission or omission. Usually, it also excludes any statutory fines and penalties.

The structure

Typically, you would choose a sum insured depending upon the nature and quantum of your work. However, what’s also important in deciding the premiums is the actual profession, the risk involved and the extent of jurisdiction one would want—you could be covered only in India or worldwide.

The premium for professionals such as chartered accountants, architects and engineers would be about 0.3% of the sum insured. For doctors with specialization the premiums could go higher. For instance, for specialists like neurosurgeons and cosmetic surgeons, the premium could be about 0.6% of the sum insured

The cover is decided at two levels. In insurance parlance, it is called “any one accident" or “AOA" and “any one year" or “AOY".

AOA, as the name suggests, caps the amount you can claim from the insurer for a single incidence or accident. AOY, on the other hand, would pay for all “accidents" in a year, provided the claim does not exceed the sum insured. You will need to decide the amount under both heads. If you choose a ratio of 1:1 between AOA and AOY, your premiums will be higher. You could also buy a liability cover for specific events or for a period of less than one year.

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