You run a service business and you want to protect it effectively with indemnity insurance. There are many important decisions which you have to make as a buyer. One of them is how much coverage to buy. You should base your calculations on the following important factors.
Financial Performance and Wealth
The indemnity insurance amount which you buy must correspond to the revenue and profit of your company and to its total asset wealth. The more profitable and wealthier your business is the higher the claimed compensation amounts will be. Hence, you have to be adequately prepared.
It is best if you use the financial statements of your company for the past five years to determine the optimal cover amount for you. If you are starting a new venture, you should get a cover amount which corresponds to the average compensation claim amount for your industry. The value of your company's assets must be considered as well.
Service Nature and Price
You have to base your choice of indemnity insurance amount on the nature of your service as well. Services related to human health such as medical and pharmacy services are associated with higher risk and this should be considered when a cover amount is selected. Similarly, services which involve a risk of large financial losses for the client such as accounting and financial advisory services will require more coverage.
The insurance amount should correspond to the price of the service as well. This is because the client will always take into account how much he has paid for the service when making a claim for compensation. The providers of more expensive services need larger cover amounts.
You have to take into account the types of clients that you work with. You have to evaluate the risk of a claim being made against your business. If you provide services to clients in traditionally more vulnerable groups such as children, seniors and individuals with disabilities, you will benefit from a larger cover amount.
You have to consider the income and wealth of your clients as well. Wealthier individuals and companies have the ability to hire top lawyers, who are capable of winning larger compensation amounts in the court of law. In such cases, you have to have sufficient cover amount in order to pay and safeguard your business.
In order to come up with the optimal indemnity insurance amount, you need to do precise analysis and calculations. You should not hesitate to get expert help with this.