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.