As an owner of a small or medium-sized business, you want to protect your business at all costs. That’s why you purchased general liability, workers’ compensation, auto, and property insurance as soon as you opened your doors. You figured those four policies would be more than sufficient to protect your business—but you might have been wrong.
Did you know that your general liability policy contains a huge coverage gap that could leave your company vulnerable to hundreds of thousands of dollars in financial loss? You might need an errors and omissions (E&O) policy to fully protect your risks. Keep reading to learn why.
Let’s say you’re a small tax firm that prepares returns on behalf of clients. Tax season rolls around, and you get way more business than you did last year. The influx of clients is great for your business, but it leaves your staff scrambling to complete their work. One client’s return gets lost in the madness, and you fail to file before the federal deadline. Before you know it, you’re getting hit with a lawsuit.
Because this suit is related to professional services, your general liability policy won’t cover it—but your professional liability insurance will. Your E&O coverage pays for legal fees, defense costs, and settlement amounts if a dissatisfied client sues you over a work mistake. A mistake could include inaccurate advice, a contract breach, an omission, negligence, or misrepresentation.
If you own a company in the professional services sector and don’t have an E&O policy, you might be wondering: Do I really need one? After all, you have a small list of clients who know your business well, and you have safeguards in place to ensure you never make a costly mistake.
However, clients can take you to court even if you don’t think you did anything wrong, and you can still spend six figures on a lawsuit that you end up winning. To protect your financial future and prevent your company from paying expensive court costs out of pocket, you need an E&O policy.
You may also need a policy to fulfill contract obligations, receive a professional license, or comply with state or federal laws. For example, law firms need E&O insurance to meet their state bar association’s requirements, and medical professionals need malpractice insurance in most states.
There is no blanket E&O insurance requirement for all businesses offering professional services to clients. However, if you fall into one of the following categories, no matter how small or large your business is, you most likely need E&O insurance coverage:
- Real estate agents
- Insurance agents
- Marketing consultants
- Technology firms
- Medical professionals
To understand your specific insurance requirements, you should read your client contracts and any state laws pertaining to your profession. If you’re not sure how much coverage you need, the E&O experts at Southpoint can assess your risks and recommend the right coverage amount for your small business.
The last thing you want to hear is that you need a new insurance policy, and by the way—it will cost more than your other policies combined. Luckily, E&O insurance coverage tends to be affordable. Small businesses can expect to pay between $500 and $1,000 a year on their policy, depending on their risk factors.
The exact cost of E&O insurance varies based on a few factors, including:
- Industry: If one mistake in your industry could lead to substantial financial loss, you will likely pay more for your coverage. For example, you might pay more for your technology E&O policy than an accountant would pay for their policy. One IT-related mistake leading to a data breach will likely cost more to fix than a misentered digit in a spreadsheet.
- Coverage limits: The higher your coverage limits, the more expensive the policy. You can purchase limits as low as $250,000 or as high as several million dollars.
- Policy type: You have two options for your E&O policy. Claims-made coverage pays for any claims filed after the retroactive date specified in your policy, but you can only file a claim while your policy is active. Occurrence coverage covers claim events that happened while you held the policy, and you can file a claim even after you cancel it. As a result, occurrence policies are generally more expensive.
Do you need E&O insurance for your small business? Turn to the experts at Southpoint. We have experience finding E&O insurance policies for a diverse group of clients across the country. Our experts negotiate with the top insurance companies to find the most affordable and comprehensive insurance quotes available. Whether you need an oral surgeon malpractice policy or a standard professional liability policy, Southpoint can help.
Southpoint also offers every other type of business insurance coverage you may need, from a simple business owner’s policy to cyber liability insurance. If you’re looking for an agent that can handle every step of your insurance journey and find comprehensive policies that fit your budget, we want to hear from you. Get in touch today to discuss your insurance options or request an E&O quote for your business.