Business Safety Net: How E&O Insurance Protects You When You Fall

Just as circus aerialists have safety nets to catch them when they fall, financial professionals in insurance, investments, and real estate buy E&O insurance to protect themselves against client lawsuits. They, like highly skilled trapeze artists, have worked hard for years to hone their skills. Yet they realize even they can make a mistake—can fall off the high wire, if you will—and hurt themselves and their companies financially. What about you? Do you have a business safety net in place to protect you if a client comes after your assets?

If not, it’s important to consider why not. Are you assuming you’re perfect and will never make a mistake? Then think again because the ranks of bankrupt financial professionals are filled with those who thought they were perfect. And perhaps they were . . . until their negligence harmed a client who then sought to recover their losses in court.

Perhaps you believe you can self-insure the costs of future E&O insurance claims. And maybe you’ll easily make good on a typical annuity-related claim of about $20,000 or one relating to group life insurance coverage of roughly $10,000 (according to a major E&O insurer’s claim study). But what if you lose a case relating to pension coverage (average claim cost: $71,000) or to disability insurance ($149,000)? Will you be able to pay for those judgments out of your personal assets? And what about outlying claims worth $500,000 or more. Would you have enough liquid assets to cover such a large payment?

Or perhaps you discount getting sued because your clients like you and have never sued you in the past. That may well be true . . . until the day one begins to harbor a grudge against you through no fault of yours. If that person files a nuisance lawsuit against you, will you have the time, energy, and expertise to dispense with it?

In all these scenarios, the typical excuses for not having E&O insurance don’t hold water. In short, if you’re doing business in the fields of insurance, investments, or real estate, your risk of getting sued is considerable. And the odds you’ll lose such a lawsuit and suffer a large judgment are also considerable. So perhaps it’s time to ask yourself a hard question: Are you equipped to weather the financial impact of losing a large E&O case? If not, what should you do?

The answer is clear: transfer your liability exposure to an insurance company by purchasing comprehensive and affordable E&O insurance. By moving your risk to an insurer in return for paying periodic E&O insurance premiums, you substitute unknown risks for predictable outcomes. Most financial professionals find this to be a trade well worth making. Here’s why.

  • First, as we just mentioned, buying E&O insurance reduces your financial uncertainty. This means you’ll be able to focus on moving your business forward without having to always worry that your next client will be the one to sue you.
  • Second, when you have E&O insurance, you’ll have quick and ready access to a vetted defense attorney. Instead of having to rush around to identify candidate attorneys and then select a capable one—which is not an easy task even in the best of times—you’ll have one assigned to your claim within a few days. This means you can focus on your defense immediately instead of spinning your wheels.
  • Third, having E&O insurance is a huge stress reliever. When you don’t have to worry about a large lawsuit putting you out of business in the future, you can focus on doing good work in the present. Who knew sleeping well at night could be so enjoyable?
  • Fourth, being insured means you never have to worry about being saddled with a legal judgment that could potentially force you into bankruptcy. Every year, thousands of financial professionals wind up broke and bankrupt because they lost a big lawsuit and lacked the means to pay a judgment. Had they purchased E&O insurance, their insurer not only would have paid the claims on their behalf, they would have also covered their attorney fees, court costs, expert witness fees, arbitration/mediation costs, and all costs related to the settlement process. If through a miracle these defendants were granted a do-over, do you doubt for a minute they’d buy E&O insurance as quickly as possible?
  • Fifth and finally, when you buy E&O insurance you essentially are telling your clients you have their best interests at heart. That’s because having E&O insurance conveys to them that you are a true financial professional who is committed to making amends should you ever make a mistake that harms them. There is no one action that builds client trust as quickly this.

In conclusion, if you are currently running your business without a safety net, consider the benefits of protecting yourself with affordable, high-quality E&O insurance from This can be the difference between you surviving a lawsuit and moving ahead with your business or you losing your assets and livelihood in one fell swoop. We hope we’ve convinced you that the former is a much better alternative. Good luck!