Errors and Omissions Insurance is a type of professional liability insurance that protects you and your company from claims arising from errors in professional services. It’s also known as E&O insurance or professional liability insurance.
E&O insurance is a critical commercial policy that protects insurance agents from common reasons for being sued. We’ll go over why errors and omissions insurance is so important, what it covers and what it doesn’t, how much it costs, and more.
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What Exactly Is Errors & Omissions Insurance?
General liability insurance, which protects against bodily injury, property damage, advertising injury, and other types of claims, is well-known to many small business owners.
E&O insurance is a subset of liability insurance that protects you from costly errors that result in lawsuits or settlements. This can include carelessness, misrepresentation, and incorrect advice.
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While errors and omissions insurance is available across industries, policies designed specifically for insurance agents can address their unique business risks. These policies typically cover you (the business owner) as well as your employees and subcontractors.
How Does Errors and Omissions Insurance Work?
Errors and omissions insurance protects your company against a wide range of claims. Assume you advised a client to purchase a policy from a specific insurance company.
The insurer appeared to be in good financial standing and profitable at the time you spoke. Your client purchased the policy on your recommendation, only to have the company fail a few months later.
Assume a small business owner purchased a policy from you. You gave them several options with varying coverages, and they chose the cheapest. However, after a minor fire loss, your client realizes that their company was underinsured and that there was a 100% coinsurance clause.
The clients in both cases file a lawsuit. Up to the limits of your policy, your errors and omissions insurance can help cover attorney fees, court costs, administrative costs to build your case, settlements and judgments, and more. It’s also worth noting that professional liability insurance only protects you when both incidents and claim filings occur while your policy is in effect.
Are Insurance Agents Required to Have E&O Insurance?
Although professional liability insurance is not required by law for insurance agents, the carriers with whom you work may require it before you can sell their policies.
Before referring new business to you, a brokerage firm or insurance agency may request proof of errors and omissions insurance.
Even if you are not required to have errors and omissions insurance, it is a good idea to have it. We are only human, and mistakes occur. Clients can sue for perceived errors even if they don’t, costing you and your agency thousands to hundreds of thousands of dollars in legal fees alone.
What Is the Purpose of E&O Insurance?
Errors and omissions insurance is the best way to protect against the legal costs of mistakes. P&C and life and health insurance agents are sued for a variety of reasons, including:
- Insurance not being provided
- Failure to carefully and effectively explain the provisions of a policy
- Failure to recommend insurance
- Making incorrect policy change requests
- Making an administrative mistake
- Product misrepresentation
E&O insurance is essential for any insurance agent who may be sued for financial losses by their insureds. This includes new and experienced agents, self-employed agents and those working as employees, as well as those running a one- to one-hundred-person agency and beyond.
What Does an Insurance Agent E&O Insurance Cover?
While specifics vary by policy, errors and omissions insurance can protect you in the following situations:
- Giving incorrect advice by accident
- Failure to meet a service deadline
- Slander and libel occur when someone accuses you of communicating false information about them or their company.
- Errors committed by your team, subcontractor, or independent contractor, such as failing to obtain a waiver of coverage
- Negligence and insufficient work claims
- Complaints about unfulfilled verbal promises
- Claims made against you after you leave the industry or retire.
While E&O insurance typically covers these situations, read the policy terms carefully before signing to determine what costs (and how much) are covered. For example, your E&O policy might only cover defense costs and not settlements.
Alternatively, it may not cover attorney fees. Make sure your E&O business insurance policy covers your needs in the event you are sued.
What Are Some of the Most Common Exclusions in an Insurance Agent’s E&O Policy?
Claims relating to: are common exclusions in an insurance agent’s E&O policy.
- Intentional wrongdoing, as well as illegal and fraudulent behavior
- Injuries, property damage, and blunders in advertising (covered by general liability insurance)
- Employees who have been injured or become ill as a result of their job (and are covered by workers’ compensation insurance)
- Harassment or discrimination in the workplace (covered by employment practices liability insurance)
- Aside from the agent’s primary responsibilities, ancillary services are provided (such as accounting services)
- Data breaches create cyber liabilities (covered by cyber insurance).
How Much E&O Coverage Do Insurance Agents Require?
The amount of errors and omissions coverage you require is determined by your financial statements, finances, asset value, and income.
Knowing your financial situation is critical because it may represent how much you would have to lose if a client sued you. E&O coverage should be at least as close to your total wealth as you can afford.
Another factor to consider is the maximum possible loss from a single client lawsuit if you or an employee made a mistake. Consider the number of annual transactions you make as well as the total lawsuit risk associated with these transactions. Your E&O policy should provide adequate coverage for these amounts.
Typical errors and omissions insurance policies range from $1 million to $2 million. Specifics vary by policy, but it could imply that you’re covered up to that amount for any single claim and for the life of the policy (typically a year). Any additional expenses would be paid for out of pocket.
It’s critical to discuss your financial and business situation with your insurer so they can help you determine how much insurance you need. They will also provide you with an insurance quote that you can compare to determine which policies provide the best coverage at the lowest cost.
How Much Does a Commercial Insurance Policy Cost?
Errors and omissions insurance typically costs $500 to $1,000 per employee per year. If you only need coverage for yourself, the average cost is typically lower due to lower limits and only one person needing coverage.
As an agent, the cost of errors and omissions insurance can vary depending on:
- Location
- History of commercial claims
- Agents present
- Revenue
- Coverage limitations
- Employee education Insurance sold
E&O insurance is typically more expensive for P&C insurance agents than for life and health agents. If you are more than one type of agent, the one in which you earn more than half of your commissions determines the type of E&O policy you must purchase. Your E&O policy, however, would continue to cover you in your other role.
When budgeting, keep in mind that before you can purchase errors and omissions insurance, your insurer will most likely require that you have general liability insurance and commercial property insurance in place (if applicable). These two coverages are typically combined in a Business Owners Policy (BOP).
Who is responsible for Errors & Omissions insurance?
If you work as an insurance agent for yourself, you’re usually responsible for purchasing E&O insurance to protect yourself and any employees.
If you work in an agency or brokerage, you may choose to purchase additional E&O insurance for yourself to fill any gaps in your boss’ policy. Having your own policy is also beneficial in ensuring that you are covered when changing jobs.
Conclusion as E&O insurance should not be overlooked.
To do your job as an insurance agent, you’ll almost certainly need E&O insurance. Even if your boss has you covered, you should probably consider purchasing a policy for yourself for added protection.
While paying for yet another insurance policy may appear daunting, keep in mind that E&O insurance protects you against many common types of lawsuits filed against agents. Having the right policy and coverage in place can save you and your company money.
Below, you will find answered to others questions
Frequently Asked Questions
[sc_fs_multi_faq headline-0=”h3″ question-0=”What is the distinction between general liability and errors and omissions insurance?” answer-0=”They provide varying levels of protection. General liability is exactly what it sounds like: it provides generalized liability coverage for lawsuits, property damage, and advertising injuries. E&O only covers lawsuits resulting from financial losses caused by your work.” image-0=”” headline-1=”h3″ question-1=”What types of losses are covered by errors and omissions insurance?” answer-1=”Insurance against errors and omissions. Errors and omissions insurance, also known as E&O insurance, is an important supplement to a company’s general liability coverage. It shields you from financial loss if a customer sues you for errors or omissions in your services. ” image-1=”” headline-2=”h3″ question-2=”What if you don’t have errors and omissions coverage?” answer-2=”You’ll have to pay for claims out of pocket if you don’t have it. If you or your employees make a mistake on the job, E&O coverage can help cover the costs of legal defense. It’s also important to remember that errors and omissions policies have a backdate.” image-2=”” count=”3″ html=”true” css_class=””]
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