Like many small businesses, your company might provide consulting, design, financial, or other professional services to customers or clients. However, nobody’s perfect, and your business can make mistakes that can cause a client to lose money. They, in turn, might seek restitution by filing a claim against your business. You can safeguard your business from claims arising out of professional mistakes by purchasing errors and omissions (E&O) insurance. Show
E&O insurance is a specialized type of liability coverage. If you don’t currently have it, your company could be facing a serious financial risk. This type of insurance is readily available and may cost less than you might think. Learn how it can help protect your investment in your firm. Key Takeaways
What Is Errors and Omissions (E&O) Insurance?Errors and omissions (E&O) insurance covers claims against a business that arise from negligence, errors, omissions, or mistakes it allegedly made while providing advice or a service. Also known as professional liability insurance, E&O insurance pays for damages or settlements paid to claimants as well as the cost of defending your business against lawsuits. E&O policies may cover defense costs within the policy limit or (preferably) in addition to the limit. How E&O Insurance WorksBusinesses need E&O insurance if they give advice or provide a professional service that requires specialized knowledge or training. For some professionals, E&O coverage may be mandated by state law. Examples include:
E&O policies are classified as either claims-made or occurrence, though most are the former. Both types cover claims made against a business arising from incidents that took place during the E&O policy period. Where they differ, however, is that claims-made E&O policies must be filed before the policy has expired. Occurrence policies may be filed during or after the policy period. NoteBecause claims-made policies don’t cover claims filed after the policies have expired, they are typically cheaper than occurrence policies. Types of E&O InsuranceThere are many types of E&O policies, and some are designed for specific types of businesses. For instance, architects’ and engineers’ E&O policies are designed for architectural and engineering firms and related businesses, such as land surveyors and construction managers. Similarly, real estate agents’ E&O insurance is designed for real estate sales agents, brokers, and appraisers. When an industry-specific policy isn’t available, insurers may use a miscellaneous E&O form, a generic policy that can be adapted to a wide assortment of small businesses and sole proprietors. Other E&O policies focus on a specific type of risk that affects a broad range of businesses. Cyber liability insurance, for example, is purchased by businesses of all sizes across many different industries. It covers first-party and third-party losses that arise from issues such as:
Another example is directors and officers (D&O) liability insurance, which protects corporate directors and officers against claims alleging breach of fiduciary duty, misuse of company funds, fraud, and other improper acts. Many types of businesses purchase D&O coverage, including public, private, and nonprofit companies. Average E&O Insurance CostsMost small businesses pay an annual premium between $500 and $1,000 for E&O insurance. The amount a company pays depends on various factors, including:
How To Save on E&O InsuranceThe cost of E&O insurance varies from one insurer to another, so it pays to shop around. You can obtain quotes online or ask your insurance agent or broker to solicit quotes for you. Here are some other tips to help reduce your cost of E&O insurance:
Frequently Asked Questions (FAQs)Who needs E&O insurance?Any business that provides advice or sells a professional service should consider buying E&O insurance. Designers, consultants, and financial advisers might consider buying a policy. In some states, E&O insurance is mandatory for certain professionals. Where do you get E&O insurance?E&O insurance is available from many large insurers, such as
Hartford, Nationwide, and Progressive. It’s also available from specialty carriers like the Doctors Company, which sells medical malpractice insurance. What is the average cost of errors and omission insurance?How much is errors and omissions (E&O) insurance? Average costs for E&O coverage for small business owners ranges from $500 to $1,000 per employee, per year. So, if your business has 50 employees, you can estimate your errors and omissions premium to be between $25,000 and $50,000 annually.
Is E&O insurance paid monthly or yearly?You can choose to pay your insurance premiums once a year rather than on a monthly billing cycle. While making a smaller payment each month requires less money upfront, it often costs more since insurers often offer discounts to businesses that pay an annual premium.
Are investment advisors required to have insurance?In most cases, financial planners aren't required to have a professional liability insurance policy, but when you're practicing with the public, it's important to be prepared for the unexpected claim which may cause you and your firm potential financial hardship.
Are financial advisors personally liable?Financial advisers are fiduciarily responsible for safeguarding their clients assets and acting in their best interests. If the adviser can demonstrate that their actions were well-intended regardless of the outcome, the financial adviser is often not guilty of any crime.
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Errors and omissions insurance cost for financial advisors
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