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Why your Business needs Contract Insurance
So you have walked into a meeting with the client with a pen and paper in your hands, eager to sign the contract, but then you realised after reading the fine print you will have to carry a particular type of insurance. You asked yourself why it is like that and the steps you need to take to seal the contract.
In this article today we will take a look at the solutions you need to fully understand what you will need to do when you find yourself in the situation above on contact insurance.
Why Contract Insurance is needed by Clients
Clients need contract insurance for just a reason – to get their interest protected when in a situation where you fail to keep your side of the contract concerning what you have mutually agreed upon.
Clients have the legal right to know your business’s financial capacity to stand behind your services and be able to protect themselves from any loss by drafting a specific financial requirement in the contract.
If a client feels your company or business is not providing a service to their satisfaction, they can decide to file a lawsuit. Even in the event that the claims are baseless, and you are justified, it is better to be insured.
Types of Contact Insurance Needed
There are two types of contact insurance that are needed by your business:
- Professional Liability
- General Liability.
This is also called error and omissions insurance (E&O). It protects you and your business from claims of negligence and or failure to perform professional services.
General liability protects your business from third claims on physical injuries, medical expenses, and damage to another person’s properties. Most contracts require close to $1,000,000 get coverage.
Two other contracts related that clients may require – business owners policy and additional insured policy.
Business owners Policy
This is also known as BOP – it is a combination of both professional and General Liability insurance.
Additional Insured Endorsement
This is a person or an entity who is insured under your policy. It shields them from liability in a situation where your actions result in a claim against them. Additional insured applies both to liability and property insurance. Professional liability insurance is not included in the endorsement by most insurers.
Other needed Document
Certificate of Insurance
The certificate of insurance can be asked by your client that shows proof from a third party that there is an insurance policy in place for your business.
It presents the type of insurance you have bought, the limits of the policies, and the deductibles, who the insurance covers, the name of the insurance company that issued the policy, and the start and expiry dates.
Accord Insurance Certificate
This is a certificate issued by brokers and agents. It is the widely accepted certificate of insurance.
Waiver of Subrogation
The waiver of subrogation stops the insurer, after the payment of a loss, from seeking some form of restitution from a third if they are partially responsible for the loss.
This stands for Insurance Service Organisation. It creates an industry-standard policy used by various insurance companies.
Primary & Non-contributory Clause
This is the first policy that responds to a loss or a claim. Most clients don’t want their insurance coverage to respond in a situation where both your insurance and theirs can share the loss.
The clause clearly states that your policy is the primary while that of your client will only respond when your limit is completely exhausted or due to one reason or the other your policy cannot respond.
Broad Form Contractual Liability
This type of insurance covers liability carried in a very wide range of business contracts. This is provided on a blanket basis by insurers by the comprehensive general liability endorsement.
Also Read: Why you Should Insure your Business
As it has been seen, it is easy to get confused by all the coverages, documents and other papers that you will or your client may need.
There are insurance agents that are highly trained and backed by a carrier dedicated to business insurance coverage that can help. You may also ask a lawyer to help you review the contract document to make sure that it is within legal bounds.
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