E&O Insurance: Finding the Right Features
Not all E&O policies are the same. And depending on your specialty, there are certain elements you may need that others do not. Here are some of the features you should look for in a high-quality E&O policy:
Adequate liability coverage
All E&O policies include liability coverage that protects you from financial loss due to a lawsuit arising from your error or omission. Liability coverage has two parts:
• Per Individual Claim – Usually, there is a limit per incident or claim. The typical individual limit is $1 million. This means that any single liability claim resulting from a lawsuit will pay no more than $1 million.
• Aggregate – Each E&O policy has an annual aggregate that limits how much an insurance company will pay each year. The usual annual aggregate is $2 million. That means the insurance company will pay on multiple claims up to, but no more than, $2 million. Some insurance companies state a lifetime policy aggregate limit rather than an annual aggregate. Be sure the lifetime limit is adequate if you go this route.
Remember, a general liability policy only covers incidents that affect bodily injury due to negligence from property or product safety. It does not cover financial loss to clients. Be sure to get adequate professional liability coverage from a high-quality E&O policy.
Legal and court costs
Whenever you are served legal papers that name you in a lawsuit, it will cost money just to defend yourself. Legal fees and potential court costs add up quickly and can turn even a small claim into a giant financial burden when you consider the total court and legal fees involved. Look for this important provision in your E&O policy to shield you from these damaging expenses.
Post-retirement claims coverage
E&O claims do not always arise while you are in business. They may surface years later after you’ve retired and a past client files suit against you. Your E&O insurance policy should have a provision to cover any claims that occur post retirement. This assures you will not be exposed to great financial risk after you stop working.
Employee or administrative coverage
Most financial professionals have employees or staff who serve clients directly. When they make a mistake or fail to carry out a required task, you will be held accountable. Employee or administrative coverage protects you from employee E&O risk.
Coverage extension to spouses, domestic partners, legal representatives, or beneficiaries
Nobody wants to have their family or other loved ones affected by a lawsuit. Some cases may name spouses as an actual defendant, even though they had nothing to do with the main financial professional’s business. Protect your loved ones with this important coverage feature.
Make sure your E&O policy can be adjusted for whatever products and services you provide. Basic policies cover you for the sale and servicing of life, accident, and health products. But also look for optional coverage for fixed and indexed annuities, variable products and mutual funds, disability insurance, and RIA Series 65.