If you are starting a new business in Alabama, you will have a lot of insurance coverage decisions to make. One type of policy that you may not have given much thought to is directors and officers insurance. These policies can provide some of the key players in your business with crucial coverage against personal losses.
When you are looking for the best insurance products to cover your Alabama business, you can turn to a local independent insurance agent for help. These agents work for you, not for a particular insurance company, so they are free to help you find great coverage at a competitive price.
Contact an insurance agent near you to learn more about directors and officers insurance coverage.
What Is Directors & Officers Insurance?
There are risks involved in running a company. Lawsuits can be brought against company directors and officers by employees, competing companies, vendors, investors, customers, and other individuals.
Directors and officers insurance (sometimes referred to simply as “D&O”) is a type of liability insurance that companies can purchase to protect the personal finances of their corporate directors and officers if they are sued for mismanagement, wrongful acts, or other errors in judgment.
Who Needs Directors & Officers Insurance?
Public companies are not the only businesses whose directors and officers are at risk of facing lawsuits. Private and non-profit companies have risks as well.
Directors and officers of public, private, and not-for-profit entities expose themselves to the risk of a lawsuit every time they make a decision on the behalf of the organization they are representing. This risk exists even when they are making all of their decisions with good intentions, so it is very important that these individuals are protected against financial losses and reputational damage.
Basically, if your company has a board of directors or makes decisions under the recommendations of an advisory committee, you should consider investing in a directors and officers insurance policy to protect these individuals as well as your company.
What Is the Average Cost of Directors & Officers Insurance in Alabama?
The average cost of a $1 million directors and officers insurance is about $6,000 a year. However, there is a very wide range in what businesses will be expected to pay. For instance, a small, low-risk company might only pay about $250 a year, while a large corporation is likely to spend more than $10,000.
The cost to purchase a policy for your company will be based on factors such as the following.
- The type of business you are insuring
- The risks faced by corporate officers in your business industry
- How long your company has been in operation
- Your company’s size and financial health
- The terms of your policy
- Your company’s claims history
Companies in high-risk industries, such as banks, manufacturing plants, and biotechnology firms will pay more than those that are low risk, like retail stores and restaurants.
The only way to find out how much a policy will cost for your business is to start requesting and comparing customized quotes. Independent insurance agents make comparison shopping easy.
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What Is Covered under Directors & Officers Insurance?
Directors and officers insurance is designed to cover court costs, legal defense fees, and damages if your corporate directors or officers are sued for a covered event. Examples of likely reasons for lawsuits against these individuals include accusations of the following.
- Misuse of company funds
- Failure to comply with laws and regulations
- Lack of corporate governance
- Breach of fiduciary duty that results in financial losses or bankruptcy
- Misrepresentation of company assets
- Theft of intellectual property
- Poaching competitors’ customers
D&O policies provide a few different types of coverage.
- Side-A coverage: This is non-indemnified coverage. It is designed to cover individual directors and officers that are not already indemnified by the corporation because of state laws.
- Side-B coverage: This is indemnified coverage. It is designed to cover the corporation when it is indemnifying the officers.
- Side-C coverage: This is entity security coverage. It is designed to cover the corporation if claims are brought against the company.
An independent insurance agent in Alabama can help you understand what your directors and officers insurance will cover against.
What Is Not Covered under Directors & Officers Insurance?
While D&O insurance can cover against various errors and acts of mismanagement, it typically will not cover against intentionally illegal acts.
Therefore, while a policy may provide coverage for defense against accusations of illegal acts like fraud or illegally profiting through misrepresentation, the coverage will likely cease if the officers are found guilty.
What Is Excess Directors & Officers Insurance?
Excess directors and officers insurance (also referred to as “follow form coverage”) is a policy that is designed to supplement your primary D&O coverage by adding additional coverage according to specifically negotiated terms and conditions.
This is similar to umbrella insurance in that once your primary D&O policy reaches its coverage limit, your excess D&O policy will kick in.
When you are purchasing an excess directors and officers insurance policy, you will likely find it quite beneficial to work with an experienced insurance agent who can help you negotiate terms and conditions that are favorable to your particular company.
How Can I Find the Best Directors & Officers Insurance in Alabama?
If you have never purchased directors and officers insurance, you probably have a lot of questions. Fortunately, local independent insurance agents have the answers.
These agents can help you understand what a good D&O policy will and will not cover and can help you find a suitable policy at an affordable price. Set up a one-on-one consultation with an insurance agent near you for more information as well as help with all of your business insurance coverage needs.
TrustedChoice.com Article | Reviewed by Jeffrey Green
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