In any business, mistakes can happen. But for companies that provide professional services, even a minor error can have major consequences. That’s where errors and omissions insurance (E&O) comes in.
E&O (also called professional liability insurance) is a type of liability coverage that protects businesses from claims of negligence made by their clients. It can help cover the cost of settlements and judgments, as well as the cost of defending against a lawsuit.
E&O insurance is vital for any business that provides professional services, such as accountants, lawyers, doctors, architects, engineers, and financial advisors. It can also be a good idea for businesses that provide other types of services, such as consultants, contractors, and real estate agents.
What Does E&O Insurance Cover?
E&O insurance typically covers claims of negligence made against a business by its clients. This can include allegations of:
- Errors in the provision of services
- Omissions of services
- Breaches of contract
- Failure to meet professional standards
E&O insurance may also cover the cost of defending against a lawsuit, even if the business is ultimately found not to be liable.
What Does E&O Insurance Cost?
The cost of E&O insurance varies depending on several factors, including the size of the business, the type of services provided, and the industry. In general, E&O insurance is relatively affordable. Small businesses can often get coverage for as little as a few hundred dollars per year.
How To Buy E&O Insurance
E&O coverage can be obtained through most business insurance companies. You can get quotes from multiple companies to compare prices and coverage options. When considering an E&O insurance policy, it is important to read it carefully to understand the specific coverages and exclusions (i.e., things that aren’t covered).
How to Choose the Right E&O Insurance Coverage
When choosing an E&O insurance policy, there are a few factors you should consider:
- The type of business you operate
- The size of your business
- The industry you are in
- The level of coverage you need
- The cost of the policy
You should also talk with a company representative if you have questions about the best policy for your needs.
E&O Coverage: Important for Established Companies and Startups
Every business that provides professional advice or services should carry E&O insurance. That includes established companies and startups.
Startups may hesitate to purchase E&O insurance because they may think it is too expensive. However, this coverage can be a lifesaver for a small business that is sued. If the business doesn’t have E&O insurance, it may be forced to close its doors by the enormous financial burden resulting from a lawsuit.
Tips for Avoiding Costly Litigation
Use these tips to reduce your risk of being sued by a client:
- Get regular training for your employees.
- Use checklists and procedures to help ensure that tasks are completed correctly.
- Document your work thoroughly.
- Be transparent with your clients about your services and limitations.
- Have a clear process for handling complaints and disputes.
By following these tips, you can help prevent mistakes and the financial ruin that can come with a lawsuit.
Essential Financial Protection
Errors and omissions insurance is essential for businesses that provide professional services. It can help protect your business from a financial disaster in the event of a lawsuit. If you provide professional services, you should consider getting E&O coverage to protect your business.