Some of the great advantages of having experienced directors and officers in your firm include skyrocketing sales, marketplace successes, and growing revenues. They are capable of and responsible for taking so many critical decisions that help a business grow towards ever-greater heights. However, there are situations where these very decisions can land them in legal trouble. You, being a part of your company’s directorial board, might have to face Directors and Officers (D&O) lawsuits resulting from the actions or decisions of various stakeholders. This is where relying upon a directors liability insurance in India makes eminent sense.
A D&O insurance policy covers a wide range of litigation that can arise from consumers, shareholders, and even employees. The insurance company will pay you for defense costs as per policy terms.
If you have just started your firm, you might not know about the importance of directors liability insurance in India. There are several crucial factors that you need to think about while buying D&O insurance.
Additional Read: What are the advantages of D&O policy?
Should you consider customising the D&O policy?
Think of it from a buyer’s perspective. Most of the time, you do not buy products or services exactly the way a manufacturer or supplier sells them. Instead, you look for ways to customize them to make them more effectively fit your needs.
Consider this example – You head into a jewelry store to buy a ring. The salesman shows you several rings based on your preferences, but you do not like any. So, you decide to customize one of the rings according to your liking, add some pearls or get it made in white gold instead of yellow gold.
Similarly, it’s easy to customize directors’ liability insurance in India. There are several components of a D&O insurance policy that you can change based on your business needs.
- Sum Assured
One of the primary factors that determine the D&O insurance premium is the sum assured that you choose. In insurance terms, it is the maximum amount your policy assures you in the event of a claim against any unforeseeable situation covered under its terms.
When you ask insurers for a quote for directors liability insurance in India, they will offer a premium for a specific sum assured.
For instance, an insurer offers you a D&O policy with a sum assured of Rs. 1 crore at a premium of around Rs. 25,000 rupees annually. If you feel you need a higher sum assured, say Rs. 2 crores, it will be available at a higher premium.
- Territory and Jurisdiction Limit
For a multinational business, stakeholders aren’t limited to just one country. That’s why D&O claims may arise from across borders in some situations.
While buying directors liability insurance in India, it is crucial that you check for policy clauses that talk about territory and jurisdiction limits.
The D&O insurance benefits will depend a lot on these limits.
The territorial limit covers geographical boundaries within which claims related to the policy are covered. If your policy’s territory is India only, it won’t cover claims made outside India. On the other hand, if your policy’s jurisdiction limit is ‘Worldwide excluding US/Canada,’ it won’t cover claims brought in courts in the USA or Canada.
Choose these limits depending on the geographic extent of your business.
- Entity EPLI
Employment Practices Liability Insurance, also known as EPLI, is a significant part of directors’ liability insurance in India. It covers your firm’s directors against the claims made by your employees. However, Entity EPLI is its extension that includes cover for the firm along with the directors in legal cases related to employment malpractices. The premium you pay for a D&O policy also depends on whether you have chosen to include entity EPLI or not. It means you can add it if it is not a part of the selected policy’s terms or remove it to lower down the premium.
You get several benefits by choosing a suitable D&O policy for your firm with the appropriate customization. It is crucial for you to know about ways to personalize it.