Life insurance agents and real estate agents have very different jobs. But one thing they share is the ability to shape their clients’ expectations in order to produce good outcomes. When customers hold beliefs that aren’t consistent with reality, they often are disappointed with the results their agents deliver. For some, disappointment may turn to fury, which can spark a dispute that ends up in court. E&O insurance coverage is tailor-made for this situation. But it’s better to avoid the dispute in the first place by setting the right client expectations during your initial meetings. Here are some tips for doing just that.

  • For starters, both life insurance agents and real estate agents can make their respective sales processes completely truth-driven. Agents who are selling life insurance or annuities should never promise a benefit that isn’t spelled out in the insurance contract. Meanwhile, real estate agents should never lead sellers to believe they can sell their property for more than local market conditions suggest or buyers to be able to purchase their dream home at substantially lower-than-market prices. Regardless of whether you’re a life or real estate agent, stretching the truth will always establish incorrect expectations that can spark problems later.
  • In addition, agents must use advertising and sales literature responsibly to set appropriate expectations in the minds of their prospects. Life agents should never use illustrations that violate the NAIC Life Insurance Illustration Model Regulation. Meanwhile, real estate agents should always obey their state’s real estate advertising and solicitation rules.
  • Also important is your full commitment to educating your prospects and clients about the details of your services. Life agents should work hard to educate prospects about any contractual element that might generate a financial penalty or extra cost in the future. Real estate agents must be explicit about what they will and won’t do for buyers and/or sellers during a transaction.  Then they must document those activities in a written agreement. Promising to do something you have no intention of doing will be a recipe for disaster in most real estate engagements.
  • Because life insurance agents sell highly complicated products, it’s crucial to define appropriate expectations about things like exclusions (what a policy won’t cover), the possibility of future premium increases, and the conditions under which a policy might lapse. Also crucial is explaining the importance of truthfully and completely answering all questions on the insurance application. Failing to do so can lead to insurers challenging or refusing to make good on future policyowner claims.
  • For their part, real estate agents owe their selling clients a full discussion of the status of the local real estate market and how that will likely affect how long their homes will take to close and at what price. Agents should then help their clients settle on a rational sales price that flows from hard data, not emotions. From the buyer perspective, agents should also help their customers establish appropriate expectations about how much home their budget will allow them to buy and how competitive the buying process will be. For example, a tight market means buyers may wish to avoid low-ball first bids, which may do more to annoy sellers than produce a successful transaction.

In short, by educating your prospects and clients, you will likely head off dashed expectations before they become a complaint or a lawsuit. Still, despite your best efforts, it’s likely that a few of your customers may become disgruntled and take you to court. If you have maintained your E&O insurance in force, you will have a framework in place for responding to the client and protecting your interests.

The first thing to do is to promptly file a claim with your E&O insurance company. It’s important to do this as soon as you suspect a client will file a complaint or lawsuit. This will cause the insurer to open a claim file on your behalf, to appoint an attorney to defend you, and to assign an internal claims adjuster to manage the process of resolving the dispute. During this process, it’s important to let your attorney and claims adjuster do their jobs without interference. Let them handle all conversations and correspondence with the plaintiff and follow their advice in terms of what to say and not say during legal proceedings. Also, be sure to share your entire customer/case file with them. This will help them fully understand what led to the dispute and decide how to best defend you.

With a competent attorney and claims professional in your corner, it’s likely any lawsuit against you will either be dismissed, settled out of court, or adjudicated in a legal proceeding in a reasonable time frame. If your documentation was good and you cooperated fully with your defense team, chances are the legal outcome will be satisfactory. And most importantly, if the court deemed you responsible for paying a judgment, your E&O insurance coverage will provide you with a financial backstop. Without insurance, the cost of losing can be significant, perhaps even forcing you to declare personal bankruptcy.

However, the good news is you can almost always prevent disputes by carefully setting expectations early in your customer relationships. Even a modest amount of discussion will go a long way toward defusing future problems. And any time you spend on client education will be preferable to time spent sitting in court. Right?

E&O Insurance for Life Agents

E&O insurance for life agents may not be the first thing on the minds of new agents entering the industry. Rather, it’s learning how to do good work for their clients, while soon earning a comfortable living for themselves.

In fact, selling life insurance has traditionally been one of the best careers for business entrepreneurs. There are no barriers to entry other than passing state licenses. New life agents get to define their own market and select their own products (in most cases). And they have the flexibility to make their own schedule and work in any setting they choose, either office- or home-based.

E&O insurance life agentsMost importantly, life agents can earn as much money as their time and talents allow, which explains why selling life insurance has for years been an attractive second career for teachers, laid-off executives, and recent graduates with degrees in business, finance, or marketing (although such degrees aren’t required).

However, new life agents soon realize that bringing in clients is only one side of the success equation. The other is protecting themselves against lawsuits should they make a mistake or neglect to do something important for their clients. They do this by purchasing errors-and-omissions insurance—E&O insurance, for short—which provides two types of benefits: money to pay an attorney to defend against a client lawsuit and funds to cover legal judgments should agents lose at trial.

“Years ago, many new agents didn’t give much thought to E&O insurance,” says Steven R. McCarty, Co-Chairman and Founder, National Ethics Association. “Today, they realize it’s one of the basic forms of insurance all new life agents need. Frankly, it’s shortsighted to buy insurance to protect against a client fall or theft of office equipment and not insure oneself against a client lawsuit potentially costing tens of thousands of dollars or more.”

E&O Claims Are Costly

The risk of going uninsured is particularly acute for new agents, according to McCarty, a former insurance producer who also heads EOforLess, an NEA program that has provided affordable life agent E&O insurance since 2008. The average cost of a life insurance-related E&O claim is roughly $40,000, according to one E&O insurance underwriter. For pension products, that increases to over $70,000 and for disability-insurance claims, to nearly $150,000. Were new agents to face such claims without adequate E&O insurance, it’s likely they would need to liquidate personal assets and, if that weren’t possible, to declare bankruptcy.

E&O Claims Impact Your Business

But paying for the judgment isn’t the only problem. New agents also have to pay for attorney fees, which can amount to thousands of dollars. Together, legal fees, judgments, and court costs can combine to create a financial catastrophe that can spell the end of a new life agent’s career.

And then there are the indirect costs of losing in court:

  • Harm to one’s professional reputation, fueled by online sharing.
  • Emotional stress of dealing with a contentious legal battle.
  • Anxiety or worry about what will happen to one’s business.
  • Opportunity cost of spending time with one’s attorney and E&O claims adjuster instead of working in the business.

E&O Insurance Provider

Given these challenges, new agents realize they need to find adequate E&O insurance protection as soon as possible after they enter the industry. Fortunately, EOforLess provides a convenient and affordable way for new life agents to get covered fast: This website allows life agents to purchase E&O insurance directly from an insurance company without having to get a quote from a broker. What’s more, the firm’s innovative online platform produces “click and bind” protection in minutes, with no hassles, hidden fees, or deductibles.

Most importantly, EOforLess does not impose income caps on new agents looking to purchase coverage. This compares with at least one E&O firm that prohibits agents from earning $100,000 or more in commissions during the year prior to their enrolling and requires them to hold onto the policy for a minimum of two years.

Next Steps for Life Agents

Bottom line: business professionals looking to enter a new career with maximum flexibility and strong earning potential should look no further than life insurance sales. But they should also take immediate steps to protect their finances against litigious clients by purchasing E&O insurance designed specifically for life agents, but with no income caps.

“Taking these steps before an E&O dispute occurs will be one of the wisest things new life agents can do in their initial months in the business,” says EOforLess’ Steve McCarty. “And if they can earn a lot of money with no worries about E&O insurance income caps or a minimum two-year holding period, all the better.”

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