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What Is Directors and Officers Insurance?

When you are running a business, it is always important to try to keep your own personal finances separate from those of the business itself. If you are struggling to do this, there are a few common mistakes that you might be making, or areas that you might be accidentally overlooking.

One thing that can help you with keeping yourself safe is directors and officers insurance, and that is what we are going to look at in this article. By understanding about this insurance and making use of it, you could be much better protected personally.

What Is Directors and Officers Insurance?

So, in a nutshell, directors and officers insurance is a policy that you take out when you are either the director or a corporate officer of a company. It protects you, as well as your spouse, from losing out in terms of your personal assets because of the company itself having trouble. Specifically, you will be protected from those losses if an employee, vendor or competitor tries to sue you individually.

The insurance usually offers some protection to the company itself as well, and as you might appreciate, it is an important form of insurance for people who run businesses to have. If you don’t have it, you could leave yourself wide open to serious financial trouble, if someone sues you personally.

What Does It Cover?

So what does directors and officers insurance cover? It will primarily protect your personal assets from being included if you are sued. That means that your bank account, cash, property and belongings are safe, whereas if you didn’t have this insurance, these items could be claimed in a court as part of you being sued.

As well as those things, the insurance will cover all legal fees, and any settlement costs. There are other costs that can be included as well, as things differ slightly from policy to policy, so you will need to double check what you are being covered for if you take out such a policy.

As you can see, having this insurance is going to be vital protection if someone decides that they want to sue you because of something happening in the company that you help run.

Why Would You Be Sued?

You might wonder why someone would try to sue you in the first place. The fact is that there are many potential reasons you could find yourself the subject of this, and it can happen because of many different people – whether they are an employee of your company, an ex-employee, a vendor you work with on the supply chain, a corporate competitor, an investor in your business, or even a customer or group of customers.

There are a lot of common reasons that directors and officers get sued. It might be because of a perceived breach of duty, such as one that resulted in financial loss or even bankruptcy. It can also be down to company assets not being represented properly. Maybe someone has suspected, or proven, a misuse of company funds, which is more common than you might assume.

At other times, a director or officer might be sued for fraud, which can vary hugely from very minor incidents to fraud on a grand scale. There might be a perceived failure to fall in line with laws, such as those that protect employees in the workplace, for instance, or health and safety laws, or even equality laws. However, any illegal acts are not usually covered under this type of insurance.

The Benefits

As you have probably already gathered, there are many distinct benefits to having this type of insurance in your name. It will protect you in terms of your assets, meaning that you don’t have to worry about becoming bankrupt. It also protects your spouse and family too, so you will not find yourself worrying about that. On top of that, you will be able to continue working with your business knowing that it is separate from your finances. That’s a great feeling to have.

Of course, this insurance does not protect you from doing anything illegal. But if you are being sued because of perceived injustice, it allows you to deal with that situation as necessary without having to be concerned about your financial future. And that is a powerful position to be in, and one that many people would be glad to find themselves in should they need to. It is definitely worth looking into getting this insurance.

Finding the Right Policy

As with anything else, you are going to need to make sure that you can find the right policy for your needs, as not all policies are made alike. When you are looking for directors and officers insurance, make sure that you consider all the insurers in your area, and that you are checking over them closely to ensure that you get the right policy for you.

Of course, the best way to end up with the right directors and officers insurance policy is to use an insurance agency. They will have access to many more insurers, as well as knowing all the ins and outs of the policies that are out there at any one time. That helps you to find the right one, and you will be able to entrust them with the entire process of finding you the policy you need.

In summary, you should not overlook this. If you think you might benefit from this kind of insurance, then budget it into your business expenses and look at it today. You might find that you feel a lot better once you have this kind of insurance protecting you.