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E&O Insurance

The benefits of E&O insurance aren’t what they seem initially. Many financial professionals view E&O insurance as a way to protect themselves against client lawsuits. If they win in court, their policy will pay for their attorney fees. If they lose, it will cover the cost of the legal judgment, along with court expenses. Is that all there is? Hardly.

The benefits of E&O insurance include a host of additional direct and indirect provisions, all designed to preserve an insurance, investment, or real estate professional’s financial viability, both today and decades from now. Let’s discuss a few of these “hidden” benefits.

In terms of direct benefits, E&O insurance policies typically not only pay for attorney fees, but also for:Errors & Omissions Insurance

  • Expert witness charges,
  • Copying, filing, and software-related expenses,
  • Arbitration or mediation costs, and
  • Expenses related to settling the claim.

When you add the above cost items to the expense of hiring an attorney and potentially of paying for a large legal judgment, financial professionals might face tens of thousands, if not hundreds of thousands of dollars, in claim expenses. E&O insurance policies are designed to transfer these obligations from the insured to the E&O insurance company.  When compared to the direct financial exposure of losing in court, paying for E&O insurance premiums makes a lot of business sense. It allows financial professionals to trade a potentially catastrophic and highly unpredictable expense for a much smaller, more predictable expense. Most business people find this a trade well worth making.

What about indirect benefits? In addition to providing cash to pay for the financial aftermath of a successful client lawsuit, E&O insurance policies also provide three non-financial benefits.

  • The first is the ability to have an E&O insurance claims adjuster on your case to facilitate the investigation and settlement process. This person teams up with your attorney to handle all of the steps involved in negotiating with the plaintiff and in tracking your case’s progress through the legal system. Without E&O insurance, you’d have to handle all this work yourself, reducing the time available to work on your business. “Many financial professionals who are fighting a major client lawsuit find it difficult to focus exclusively on their normal work,” says Steven R. McCarty, Co-Founder and Chairman of EOforLess.com and of its sponsor, the National Ethics Association (NEA). “As a result, their compensation often plummets during this time, causing significant financial hardship.”
  • The second indirect benefit of having E&O insurance is the ease of mind that comes from knowing you’re protected against potential client lawsuits. Knowing you don’t fully “own” the risk of getting sued can reduce your stress and make it a lot easier to sleep well at night and to work productively during the day. “Similar to having good health, you simply can’t put a price tag on peace of mind,” says NEA’s Steve McCarty.

Protection

  • The third indirect benefit relates to helping financial professionals avoid the errors and omissions that generate legal action. At EOforLess.com, all insureds receive extensive ethics and compliance guidance that helps them not only do business the right way from a moral perspective, but also in a way that does not violate industry regulations.

How does this work? To qualify for E&O insurance from EOforLess.com, financial professionals must first join National Ethics Association. Membership provides a number of important privileges, including:

  • The ability to stamp their business with the “Ethics.net Registered Member” seal, which enhances online reputation.
  • The opportunity to purchase a Certified Background Check on themselves and their business, which builds consumer trust and shortens the sales process.
  • Visibility in the NEA Member Directory, which can generate traffic back to the professional’s own website.
  • Access to hundreds of local and national discounts for their business or home, which saves money.

But the most important indirect benefit of E&O insurance is access to NEA’s loss-control guidance. This comes in the form of ethics and compliance educational content that motivates advisors to follow ethical and compliant business practices. This information can be found in the “Ethics Center” at Ethics.net. Plus NEA also frequently shares this guidance with members via their periodic newsletters and bulletins.

By knowing how to treat their customer right and how to follow all relevant regulations for their license type, financial professionals will greatly reduce their risk of getting sued. This may well be the most powerful E&O insurance side benefit of all.