Does your business need eo insurance? Take a look at this article to find out what E&O insurance is and whether it's the right choice for your needs.
Are you a service-based, small business owner without liability insurance?
If yes, getting errors and omissions (EO) insurance must be at the top of your priority list because it can provide you with the necessary financial protection against claims and lawsuits.
But what is E&O insurance? We've covered that question and more in this article, so keep reading!
E&O insurance is a type of liability insurance that helps businesses against lawsuits if they make mistakes that lead to financial loss for clients.
Without this protection, covering claims can be financially distressing—even if it's without merit!
There's no one-size-fits-all when it comes to E&O insurance coverage.
But typically, the insurance can cover expenses such as damages, legal and court costs (e.g., attorney fees and defense costs), and settlements in case of the following situations:
E&O insurance can't cover everything for a business, so it's crucial to be informed of what this type of insurance doesn't include.
Doing so will help you plan ahead in case you face illegal acts that this insurance can't protect against.
So what does E&O insurance exclude?
It varies, but generally speaking, errors and omissions insurance can't cover the following:
Also, it's important to note that asking the insurance company is the best way to find out what your errors and omissions policy excludes.
Professionals that provide consulting and service-based businesses are the most suited for this type of liability insurance.
So if you're a business owner, you can get errors and omissions insurance from any of the major commercial insurers.
This insurance is usually customized based on the risk levels of different types of businesses.
For instance, a building designer might need more considerable E&O insurance coverage than a printing company since the former is more likely to make mistakes and get sued.
Here are some examples of industries and businesses that need E&O insurance:
It's also important to note that E&O insurance isn't suitable for businesses operating at home offices.
E&O insurance can cover expenses up to a specified amount, depending on the policy terms you agreed on.
So you probably want to determine the amount of E&O coverage you need.
On average, most businesses have a claim limit of $1,000,000.
But generally speaking, you should at least cover the bare minimum, which will be around $250,000.
However, if your business is more on the risky side, this minimum amount of errors and omissions coverage won't be enough.
For instance, real estate professionals have a high risk of getting sued, so their E&O insurance coverage ranges between $500,000 and 1,000,000.
So whatever your case might be, you should always figure out how much coverage you require by consulting several insurance providers.
Based on a study by Insureon, around 50% of business owners pay anywhere between $500 and $1,000 annually for E&O insurance policies.
In addition, almost 20% of business owners pay less than $500 annually to obtain coverage.
Besides the type of industry, you can predict the cost of errors and omissions insurance based on factors such as:
Here is a comparison table for the median E&O cost according to the profession.
No, you'll often hear the terms E&O insurance and professional liability insurance used interchangeably because they offer the same coverage.
The reason is that different industries adopted different terms to describe this policy.
For example, accountants and architects prefer to use the term "professional liability insurance," while tech and real estate firms prefer to use the term "errors and omissions insurance."
Also, most legal and medical firms like to use the term "malpractice insurance."
Similar to most insurance policies, E&O insurance lasts for a year.
Luckily, if you miss renewing it by the end of the year, you get a one-month grace period.
What if you miss the grace period too?
Then the eo insurance won't cover you anymore in case you get any professional liability claims.
We always recommend that you renew your errors and omissions insurance at an earlier date.
This way, you'll get ample time to reassess the policy and make any necessary changes to it.
Most small business owners providing professional services should get errors and omissions insurance to cover claims they might get from alleged mistakes.
This will help them save on costly legal expenses that might lead to substantial financial losses.
A collection of the most frequently asked questions about this term:
E&O insurance covers claims related to professional mistakes or negligence that cause financial loss to clients, while general liability insurance protects against bodily injury, property damage, and other non-professional risks. Both are essential, but E&O specifically addresses the risks associated with providing professional services.
Yes, E&O insurance is crucial even if you haven't faced lawsuits. It provides financial protection against unforeseen claims, helping cover legal fees, settlements, and damages. Without it, a single lawsuit, whether justified or not, could be financially devastating for your business.