The Small Business Times

E&O Insurance: Protecting Your Business From The Unexpected

In the ever-evolving multiverse of business, mistakes are inevitable. Not a single business owner should expect absolutely spotless work from the employees, and no employee in the world is capable of maintaining a high level of quality all the time. And it’s only natural: we are all human, and we all make mistakes.

But some mistakes cost more than others. It’s one thing to lose a customer on the phone, and a totally different thing to face a lawsuit resulting from claims of negligence or inadequate work. The latter may cost you thousands and even millions of dollars.

Luckily, both small and big businesses can safeguard against all kinds of mistakes and inaccuracies by purchasing E&O insurance, which can be especially helpful for insurance agents, property managers, home inspectors, financial advisers, doctors, and real estate agents.

Below is everything you should know about E&O insurance and how it can help your business remain afloat when the unexpected occurs.

What Is Errors And Omission (E&O) Insurance?

Also known as professional indemnity insurance, professional liability insurance, or omissions insurance, E&O insurance protects business owners and individuals against claims resulting from alleged or factual oversights and professional mistakes.

Now, why alleged? Well, you may suffer financial losses even if you are not at fault. For example, you may have to pay for lawyers or bear other litigation expenses.

It’s very popular today to give financial advice on the Internet hiding behind a disclaimer of not being a financial advisor. People do that to comply with the law because real financial advisors – even those following the guidelines and informing their investors of the associated risks – may get sued and, unless insured, may have to pay for defense costs and legal expenses out of pocket.

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As far as service-providing and advice-giving are concerned, E&O insurance may be the protection you need.

Is E&O Insurance Mandatory In The United States?

Not mandatory in the United States, E&O insurance can nevertheless be required to comply with industry standards – by FINRA, the company’s investors, etc. – especially when it comes to healthcare, insurance, real estate, and government contracts.

What Does E&O Insurance Cover?

Protecting businesses against lawsuits, E&O insurance covers attorney fees, court costs, administrative costs, and settlements up to the maximum amount specified in the policy, resulting from claims of omissions, negligence, errors, inaccuracies, or misrepresentation.

Not having omissions insurance may result in heavy financial losses up to bankruptcy. On the other hand, an adequate amount of E&O coverage may help you eliminate potential liabilities or mitigate the financial consequences of claims.

What Is Excluded From E&O Insurance?

E&O insurance doesn’t cover illegal acts, data leaks, bodily injuries, property damage, intentional damage, harassment, discrimination, and work-related injuries and illnesses.

How Much Does E&O Insurance Cost?

The average annual cost of an E&O policy reaches $1,000 per person. The actual cost of your E&O policy, however, will depend on an array of factors, including the type of business you’re in, the level of underwriting risk, coverage limits, claim history and the number of employees in your company.

The most expensive median annual premium for E&O insurance is in building design (up to $2,000), followed by IT ($750), real estate ($650), insurance (600), and finance ($450). The claim limits vary from a few hundred thousand dollars to millions of dollars.

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How To Save On Your E&O Insurance Policy?

You can save on your E&O policy by changing its limits, as well as by:

  • Paying the annual amount of premium upfront
  • Keeping your E&O policy with the same insurer

On top of that, you can get coverage for select months for seasonal businesses, though that may not be the best strategy in the sense that an E&O claim can only be covered if the policy was active when the mistake occurred. With unfortunate timing, an insurance gap may lead to substantial financial loss.

Real Estate Cases When E&O Insurance May Help

E&O insurance for real estate may be of tremendous value. To wrap things up, let’s mention a few cases when E&O insurance may save your day as a real estate agent:

Communication mistakes

Failure to provide important details to your client may result in a lawsuit. If, for example, you forgot to mention that the house in question is located in a flood-prone area, your client may get very disappointed when he or she discovers it – and rightfully so – and decide to sue you.


Clients can also sue you if they believe you haven’t performed up to standards – for example, if the client believes that you haven’t negotiated the best price for the house.


If you’ve informed your client that you could possibly spare them from paying a certain bill, but that eventually turned out not to be the case, the client may decide to sue you.

At the end of the day, however, making mistakes is something you never should be afraid of, especially if you’ve enrolled in a wisely chosen E&O insurance policy.