Directors and Officers Insurance: Meaning and How It Works

What is directors and officers insurance all about? If you have no idea or have never heard of it, this is the right platform to get your information. Before we begin, there are a lot of business companies, and these organizations have directors as well as officers. But what if I told you that there is an insurance policy that offers coverage and protection for them?

Directors and Officers Insurance: Meaning and How It Works

What Is Directors and Officers Insurance?

Directors and officers’ insurance, known as D&O liability insurance, offers coverage to policyholders against personal losses if they are sued because of a director or officer of an organization or business.

In other words, if you are a business owner and you have directors and officers working for you, this insurance policy is simply for you. However, if they are in a lawsuit because of claims by customers or clients, this type of insurance will protect them from losses. It also covers the cost of an incurred lawsuit and other legal fees.

How Does It Work?

If you are working as an officer or director for an organization for profit or no profit, D&O insurance will be a good idea. So, the purpose of this policy is to protect against personal losses, and it will compensate you for legal fees and costs in a lawsuit or reimburse your business. How does it work?

When directors’ and officers’ insurance claims are received, they are paid to directors and officers of an organization or company for losses from defense costs. In the meantime, trial defense ‘and criminal and regulatory investigations are part of the type of coverage they offer. These criminal and civil actions are brought against the director and officer at the same time.

For instance, a manager failed in his responsibility to manage, and as a result of this, many people decided to sue the manager. But for them to do this, they need to have suffered damage or injury. Then, the suit will be filed, and the insurance company will be aware.

However, if the claim is part of the coverage, the insurance company will pay the defense cost. On the other hand, if the claim is covered but the case is lost, the insurance company will pay for defense costs as well as losses.

What Does Directors and Officers Insurance Cover?

Before getting a quote, this is one of the things you should look out for and compare when choosing. This is because every insurance company has its own coverage plans, but these are the basic coverages you can get with your D&O policy:

  • Theft of intellectual property
  • Discrimination in the organization against employees
  • Bankruptcy or financial loss
  • Mishandled funds
  • Inability to follow the workplace rules and regulations
  • Copyright infringement
  • Slander 
  • Falsification of company assets
  • Libel 

These are the events or situations that directors’ and officers’ insurance protects policyholders from.

What Does It Not Cover?

Although there is a lot of good coverage that you get when you purchase a directors and officers insurance policy, there are some exclusions, and they will be listed below:

  • Fraud
  • Property damage
  • Illegal acts
  • Bodily injury
  • Personal benefits
  • Prior claims
  • Pending litigation

So, these are the situations that will not access the coverage options that directors and officers insurance provides.

How Much Does Directors and Officers Insurance Cost?

Different factors affect the cost of getting a directors and officers insurance policy. However, the average cost of buying this type of policy is $1,240 per year. Nevertheless, here are some of the other factors that affect the cost of D&O insurance:

  • The type of business.
  • Claims history.
  • Amount of debt owed by the company.
  • Policy limits.
  • Company revenues.
  • Number of years in business.
  • Number of employees.
  • Financial strength.
  • Operating costs.
  • Market trends.

These are the things that the insurance company will look out for before approving a D&O insurance quote from you.

How to Get Directors and Officers Insurance

Finding and applying for the best directors’ and officers’ insurance can be very complicated, especially with the increased number of companies offering such services. Nonetheless, I will be sharing with you the appropriate steps and tips you need for choosing the best policy provider. Now, let us begin:

  • Choose the right policy limit.
  • Get and compare different quotes from various companies.
  • Speak with an insurance professional who knows more about director and officer insurance coverage.
  • Read through the policy.
  • Ensure you understand the coverage you are getting and purchasing.

Once everything is ready and your quote is ready, you can connect with board officers and members who are interested in your company.

Best Directors and Officers Insurance Providers

If you do not want to experience financial losses due to a lawsuit, using the best directors’ and officers’ insurance is advisable. However, do not just sign up or purchase a quote because they are among the best. Instead, compare before choosing:

  • Travelers
  • The Hartford
  • HUB International
  • American International Group
  • Founder Shield
  • Liberty Mutual
  • CoverWallet
  • Embroker
  • Chubb

By comparing their coverage options, you will be able to find out if they can offer you just what you need and at a good price as well.