Is E&O Insurance a Good Investment for Business Owners?

If you own a small business, you probably are involved in a number of its functions: marketing, sales, operations, finance, technology . . . the list goes on. However, your most important job activity is likely to be management—the function that handles the planning and allocation of resources. If you think about it, is there anything more important than charting the path forward for your business and then assigning the resources necessary to achieve its goals?

When you’re wearing your management hat, the key question is, “Should I allocate $x here or would it generate a better return by investing the money there? This pivotal question also relates to risk management and the purchase of insurance, including E&O insurance. That’s because deciding to buy E&O insurance will consume resources that could be used elsewhere in the firm. So you want to be certain you are making a wise resource allocation for E&O insurance vs. for using the money to buy something else your firm needs.

Investing in E&O insurance isn’t like purchasing a financial asset such as stocks and bonds. That’s because it doesn’t appreciate in value as its price increases or generates higher dividends when it’s profitability grows. Instead, it protects you against the financial costs of getting sued and losing your case. In case that happens, your E&O insurance will provide cash to pay for any court judgments, expert witness fees, and court costs. It will also provide funds to pay for an attorney, who will quarterback your defense.

Is this a good “investment”? Well, if you lack sufficient cash and other resources to pay for the above items, it may well be the best investment you ever made! But covering the hard-dollar costs of losing an E&O lawsuit is just one feature of your E&O purchase. There are a number soft-dollar or intangible benefits for buying E&O insurance, as well. Here are just four of the most important ones:

  1. First, when you purchase E&O insurance, you are trading your cash for enhanced financial security. For a reasonable quarterly or monthly outlay, you will be secure in the knowledge that if you lose a court battle, your insurer will pick up the tab. This means you won’t have to liquidate all your assets or declare bankruptcy in order to make good on a court judgment. Most life insurance agents, property-casualty agents, or registered investment advisors would consider that to be a very good investment, indeed.
  2. Second, when you purchase E&O insurance, you, in effect, pre-pay access to a vetted E&O insurance attorney who can jump into your case with no up-front due diligence on your part. The benefit of being able to quickly gain access to a trusted attorney cannot be overstated. At a moment of high stress, it’s extremely comforting to know you won’t have to screen and hire your own attorney. Your insurer-appointed lawyer will get on your case immediately.
  3. Third, reducing uncertainty and getting rapid legal help will greatly lower the inevitable stress and anxiety that comes from getting sued. If you’re like most financial professionals, you likely will be stunned to hear that a client is bringing legal action against you. Once the news sinks in, you may begin to experience the symptoms that follow trauma: difficulty sleeping, excessive worrying, uncontrolled anger, and a desire to self-medicate, among others. Investing in E&O insurance helps to counteract these negative symptoms by reassuring you that you are not alone in this crisis. Your insurer-appointed attorney and claims adjuster will help you get through it. And if you lose your case, your insurer will help you to defray the financial aftermath.
  4. Finally, investing in E&O insurance means you will have complete protection against a lawsuit-generated personal bankruptcy. If you’ve ever seen a friend or family member go through this process, you know how disruptive and upsetting it can be. Buying E&O insurance means you will likely not have to resort to bankruptcy in order wipe your financial slate clean.

With a significant “return on investment” from buying E&O insurance, it should be obvious by now that financial business owners need E&O insurance. It’s not a big investment in terms of cash outlay. But it’s a huge investment in terms of potential benefits to one’s business and personal security. And given this importance, it’s also crucial to make this purchase as quickly and efficiently as possible. This means purchasing it online through a firm such as EOforLess.com rather than working with an offline broker, who will generally take days or weeks to complete the transaction. With EOforLess, you can shop, apply, and pay for your E&O coverage in just a few minutes online. And printing your coverage confirmation will take just a couple minutes more.

So stop wondering about whether E&O insurance is a good investment for business owners. Take our word for it; it may well be the most important purchase you’ll ever make for your business, for your family, and for you.

“Actions speak louder than words,” goes the old saying. This is especially true in life insurance, where agents who deliver on their promises outpace those who breach them. One especially important action is purchasing E&O insurance for your business. This doesn’t just protect your finances against client lawsuits; it sends a powerful message to your customers that you are a responsible financial professional . . . one who will make them whole should you ever make a mistake.

For this reason, buying E&O insurance is likely the most powerful method available for building client trust. Why? Because it sends your clients five compelling messages:

  1. That you have a fiduciary mindset. Even if you are not legally required to uphold a fiduciary standard of care, buying E&O insurance shows you have a fiduciary attitude. It conveys the message that you care about your clients’ financial well-being and will do your best to preserve and enhance it.
  2. That you believe in the value of risk assessment  and mitigation. In other words, when you buy E&O insurance, you model for your clients the same steps you’d like them to take . . . assess risks, identify key exposures, and transfer those exposures to an insurance company in exchange for paying premiums. When you buy E&O insurance, you encourage clients to purchase the insurance they need to keep them and their families safe.
  3. That you believe in being a responsible life insurance agent . . . willing to own up to and remediate your mistakes. E&O insurance is a cost-effective way to make clients whole after you make a costly mistake. Knowing that you have this protection in place will be a tremendous comfort to your customers. And they will respect you for it.
  4. That you are in this for the long haul. Having E&O insurance tells people you intend to stay in business for years. Since your policy serves as a financial backstop in case you lose in court, you won’t have to liquidate personal assets or shutter your business to cover a legal judgment. Clients will appreciate your financial resilience and longevity.
  5. That you will focus 100 percent on their needs because you won’t always be worried about making mistakes or getting sued. In short, having E&O insurance liberates you to do your best work for your clients; constantly second-guessing your actions and worrying about your legal exposures will be things of the past.

For all of the above reasons, it makes great sense for you to buy E&O insurance and to keep your policy in force at all times.  It’s an excellent way to demonstrate your long-term commitment to your clients, in good times and in bad.

If you’re ready to begin sending these messages to your clients, take the next step and visit EOforLess, an online provider of affordable E&O insurance. There you’ll find options for protecting your business and a user-friendly shopping portal that will bind the coverage you need in just a few minutes.

So don’t wait any longer. Build client trust by getting E&O insurance today!

Are you a life, health, or property-casualty insurance agent? Do you do investment or financial planning for a fee? Then you know all of these fields can be excellent ways to make a living—both financially and psychologically. But you also know they can be risky. Sometimes insurance or financial professionals do something wrong or fail to do something important. Other times, a client may create a dispute in an attempt to make money or hurt their advisor. In either scenario, getting embroiled in a court battle can turn a satisfying career into a stressful nightmare. And if you lose your case, it can have a devastating impact on your finances.

Enter e and o insurance, otherwise known as E&O coverage or professional liability insurance. With E and O insurance, you can convert a large, unknown, potentially damaging financial loss (a court judgment or settlement) into a known, easily affordable and budgetable expense (E&O insurance premiums). By transferring your risk, you not only will protect your business, but also secure peace of mind. For these reasons, thousands of insurance and investment professionals today buy E&O insurance in order to establish a financial backstop in case they lose a client lawsuit.  Are you among them?

If so, read on for a quick refresher on what E&O coverage is and how it works. If not, consider whether having this form of insurance would benefit you in the event a client decides to take legal action against you . . . and wins.

So what is E&O insurance? It’s simply an agreement between an insurance or investment professional and an insurance company in which the insurer assumes a professional’s liability risks in exchange for receiving a single or periodic premium payment. The purpose of the contract is to generate cash in case a court finds that the professional harmed a customer and must be held financially accountable.

What are the terms of the deal between you and your insurer? The easy answer is that your E&O policy will cover you in the event you make a mistake or neglect to do something that results in a financial loss to a client. The harder answer involves drilling down further and examining the policy’s insuring clause and list of exclusions. Although the latter discussion is beyond the scope of this article, we recommend you carefully read those sections of your policy to see how they define terms such as “insured,” “loss,” “claim,” “wrongful act,” and “professional services” and what losses they will not cover. There are nuances involved in how insurers define these terms. So you want to be sure their contract language syncs with your needs. If not, you may not be protected in the event you get sued in the future.

However, if you operate within the policy’s insuring clause and exclusion list, then you will be fully protected against future lawsuits up to your policy’s limit of liability (example: $1 million). This assumes you pay your premium when it comes due. In the unfortunate case a client sues you, your insurer will then do the following on your behalf:

  • Provide you with an attorney at no additional cost.
  • Assign a company adjuster to investigate and process your claim.
  • Pay your attorney’s retainer fee and additional fees incurred while handling your case.
  • Pay for expert witnesses your attorney deems necessary.
  • Cover arbitration or mediation costs.
  • Pay for any court-related expenses.

For your E&O coverage to work as planned, you must uphold your end of the bargain. This involves paying for your E and O insurance premium on time, never letting your policy lapse, and notifying your insurer promptly at the first sign that a client may file a complaint or lawsuit against you.

Avoiding a lapse is doubly important if you purchased a claims-made E and O insurance policy. That’s because under the terms of a such a policy, the insurer will provide protection for any client dispute or lawsuit that arises and is reported during the policy period. This is true even if the claim resulted from an event that happened many years ago when you had E&O insurance with another company. (Claims-made policies are distinct from occurrence E&O policies. With those, the E&O insurance policy in force when the precipitating incident happened pays the claim, not the one in force when the claim is filed.)

However, there’s an important caveat: You must have maintained continuous E&O coverage over the years. If you canceled your policy, creating a coverage gap, your current claims-made policy will not cover events that occurred prior to the gap.  So if you take nothing else away from this article, let it be this: don’t lapse your E&O insurance policy. Even if you replace it months or years later, you will now have a coverage gap to deal with. This may have dire consequences for your finances if a lawsuit arises from the gap many years from now.

Once you understand how E&O insurance works, the next question is determining from whom to buy it. If you have a large agency and many agents and service staff working for you, or if you engage in complex, risky transactions, you might want to work with an experienced E&O insurance broker. This person will shop your case to multiple markets and return with several insurance quotes for you to consider. Once you select one, you will likely have to submit an insurance application and then wait for days or weeks until the insurer gets back to you with its decision.

Alternatively, if you are a solopreneur and don’t sell risky products (or do risky transactions), you may want to purchase your E&O insurance online from a firm such as EOforLess.com. A pioneer in online insurance sales, EOforLess provides E and O insurance protection for life, health, and property-casualty insurance agents, as well as for registered investment advisors. How to buy from us? You simply visit our website, select the appropriate policy for your license type, complete an application, and provide payment information. You can then bind your coverage and print out proof of insurance within just a few minutes. As a bonus, you will also be enrolled in the National Ethics Association, which provides ancillary benefits such as product discounts and free CE courses. NEA also hosts an online Ethics Center, where you can learn how to protect your firm by adhering to ethical and compliant business practices.

The bottom-line point is this: to sell insurance or investments in today’s litigious world, sensible professionals do business defensively in order to avoid potential E and O insurance claims. Part of this involves developing an ethics policy for your firm and following all pertinent compliance regulations. The other part involves making sure a successful client lawsuit won’t bankrupt you. How? By purchasing comprehensive and affordable E&O insurance. If you’d like to check out your options, please contact EOforLess today.

What Every Advisor Needs to Know about Errors and Omissions Insurance

People new to business often confuse a product’s features with its benefits. For example, if you were to ask a new life insurance agent what the benefits of errors and omissions insurance are, he (or she) might say E&O insurance generates cash to help resolve client lawsuits. But paying for attorney fees, expert witness charges, arbitration or mediation expenses, and settlements or court judgments relates to the mechanics or features of the policy, not to its benefits. To fully understand the true benefits of errors and omissions insurance, you have to consider the five key reasons to own this invaluable form of insurance.

  1. Less financial uncertainty. As we’ve discussed in the past, buying E&O insurance allows you to replace a large, unpredictable risk (e.g.: the chance of getting sued) with a smaller, known expense (a periodic E&O insurance premium). Most financial advisors find that paying for E&O insurance is more tolerable than having a large unknown risk hovering over them.
  2. Easy access to legal advice. In the unfortunate event a client sues you, you must find an attorney to represent you. But how will you know if the person has sufficient expertise with professional liability cases? And how will you assess his or her track record of winning cases such as yours? Plus, since finding a competent attorney is time-consuming, it may distract you from your normal job duties, reducing your revenue in the short term. However, when you have E&O insurance, your insurer will quickly provide you with a vetted attorney who will immediately launch your defense.
  3. Less stress. Until you’ve been sued, you’ll have no idea how upsetting it can be. For one thing, it raises the possibility you’ll be found liable for a large financial settlement or judgment. If you lack liquid assets to cover that expense, you might be looking at selling off assets or even declaring bankruptcy. For another, it raises questions about your competence. As opposing counsel attacks your competence and credibility, it’s hard not to take those claims seriously and to question your abilities. Having E&O coverage means you’ll have a financial backstop in the event you lose your case. This is a huge stress reducer. What’s more, your attorney will work hard to mitigate the attacks made on your professionalism. This will help to preserve your self-confidence and positive attitude once the case is resolved, hopefully in your favor.
  4. Asset preservation. We mentioned the threat of bankruptcy. Well, preserving your assets is likely the most important E&O insurance benefit of all. The prospect of losing everything and/or of having to go deeply into debt to satisfy a court judgment is a horrifying one for most financial advisors. Fortunately, having E&O insurance will prevent these outcomes, assuring your financial viability and providing you with peace of mind.
  5. Client trust-building. Clients want to know that their financial advisors are true professionals. What does this entail? That you maintain a high standard in terms of how you discharge your duties and that you take responsibility for your mistakes. By doing these two things, you will instill trust among your prospects and clients. Purchasing E&O insurance is the best way to take responsibility for your actions because it means you have a mechanism in place to make your clients financially whole in case you cause them financial harm.

Now, should you mention that you have E&O insurance? Perhaps not explicitly. But you can tell clients you are a responsible business owner who maintains comprehensive insurance coverage to protect your business and its clients against financial loss. Knowing this will not only provide a great deal of comfort to them, it will also help you sleep at night.

So if you’re tempted to not buy E&O insurance (or to lapse your existing policy), consider the profound benefits of having errors and omissions insurance protection: less financial uncertainty, ready attorney access, less stress, greater asset preservation, and enhanced client trust. Wouldn’t you rather have those benefits than not? To review your errors and omissions coverage options, visit EOforLess.com today.