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Do you own or operate an insurance or real estate agency? Are you a solo insurance agent or real estate agent or broker? Then you’re likely familiar with the potential risks you face from customers who claim you’ve done them financial harm. However being aware of these risks and actually protecting yourself against them are two different matters. Awareness doesn’t cost you anything; protecting yourself involves purchasing errors and omissions insurance, otherwise known as E&O insurance or professional liability insurance.

When faced with the costs of buying E&O insurance, some insurance and real estate professionals opt to remain uninsured. Perhaps they think they’ll never make a mistake or if they do,  they can make amends outside of court.  Or they may decide to self-insure their errors and omissions exposures, figuring that any claim that arises will likely be small enough to finance out of operating revenue. Wrong on both counts!

First, no human is perfect. Most real estate agents or insurance producers will make a serious mistake at some point in their careers. In fact, many E&O insurance brokers quote the statistic that one in seven agents will be sued at some point in their careers. Whether that statistic is still accurate is hard to say. However, we can say that betting your financial future on the belief that you’re perfect is not a sensible risk-management strategy.

Second, it’s true that many errors and omissions claims never amount to more than a few thousand dollars. But many add up to much, much more. According to research from an errors and omissions insurer serving life and health insurance agents, the average claim costs for various lines of business can be significant. Here’s how they stack up:

  • Group life: $10,808
  • Individual life: $40,479
  • Annuities: $20,386
  • Disability insurance: $149,116
  • Pension products: $71,068
  • Financial products: $12,270

But here’s the rub. The figures above are averages, so outlier claims can involve much higher costs. Would you like to be the life insurance agent facing a $250,000 disability insurance court judgment . . . without errors and omissions coverage?

For this reason, we encourage you to seriously think about the risks you face when doing business without adequate E&O insurance. Here are three of the major ones:

#1: The risk of bankruptcy. The most important benefit of E&O insurance is that it provides a financial cushion in case a court renders a big judgment against you. Depending on the size of this order, you might be forced to liquidate all of your business and personal assets. If these aren’t enough to make good, you might even have to declare bankruptcy. Given the disruption a bankruptcy can bring, doesn’t it make more sense to carry sufficient errors and omissions insurance instead?

#2: The risk of selecting the wrong attorney. Without having E&O coverage, you might end up having to hire your own attorney. Since this is something you don’t do every day, you might retain someone who will make your case disappear via sheer legal brilliance. Then again, you might end up with a loser who bungles your case due to incompetence, inattention, or lack of experience. Not only will you have to pay for the latter person’s legal fees, you will also be out of pocket in terms of any judgments or court expenses the court levies. Now, had you purchased E&O insurance, your insurer would be required to provide you with an attorney.

#3: The risk of having to represent yourself. If you opt to self-insure your errors and omissions risks, you might not have the money to retain a smart attorney. In that case, you might be forced to defend yourself. This is a spectacularly bad scenario. Why? Because you are an insurance or real estate professional, not an attorney! Representing yourself will likely result in you making mistakes that can sabotage your case. As the truism goes, someone who represents himself in a court of law has a fool for a lawyer. So given the alternatives of being your own attorney or having your E&O insurer provide you with one, which is the more sensible option?

Given the risks you’d face as an uninsured insurance or real estate agent, wouldn’t it make more sense to assign your operating risks to an insurance company in exchange for paying an E&O insurance premium? Doing so will provide you with four key benefits that are well worth the cost:

  • The reduction of financial uncertainty.
  • Assistance with handling a financial dispute (via access to a company-appointed attorney and E&O claims adjuster).
  • Stress reduction, since being insured will help you to worry less about losing your case.
  • Bankruptcy protection, so that a large court judgment won’t necessarily spell the loss of all your financial assets.

Assuming these benefits make sense, consider the added benefit of purchasing your errors and omissions policy online from a provider such as EOforLess.com. We are the pioneer in online click-and-bind E&O insurance, with substantial experience working with the top insurers and program administrators. Plus, our long track record of providing insurance and real estate professionals like you with affordable and high-quality E&O coverage is second to none. To check out your errors and omissions insurance policy options, please visit our website 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.