Is E&O Insurance a Good Investment for Business Owners?
If you own a small business, you probably are involved in a number of its functions: marketing, sales, operations, finance, technology . . . the list goes on. However, your most important job activity is likely to be management—the function that handles the planning and allocation of resources. If you think about it, is there anything more important than charting the path forward for your business and then assigning the resources necessary to achieve its goals?
When you’re wearing your management hat, the key question is, “Should I allocate $x here or would it generate a better return by investing the money there? This pivotal question also relates to risk management and the purchase of insurance, including E&O insurance. That’s because deciding to buy E&O insurance will consume resources that could be used elsewhere in the firm. So you want to be certain you are making a wise resource allocation for E&O insurance vs. for using the money to buy something else your firm needs.
Investing in E&O insurance isn’t like purchasing a financial asset such as stocks and bonds. That’s because it doesn’t appreciate in value as its price increases or generates higher dividends when it’s profitability grows. Instead, it protects you against the financial costs of getting sued and losing your case. In case that happens, your E&O insurance will provide cash to pay for any court judgments, expert witness fees, and court costs. It will also provide funds to pay for an attorney, who will quarterback your defense.
Is this a good “investment”? Well, if you lack sufficient cash and other resources to pay for the above items, it may well be the best investment you ever made! But covering the hard-dollar costs of losing an E&O lawsuit is just one feature of your E&O purchase. There are a number soft-dollar or intangible benefits for buying E&O insurance, as well. Here are just four of the most important ones:
- First, when you purchase E&O insurance, you are trading your cash for enhanced financial security. For a reasonable quarterly or monthly outlay, you will be secure in the knowledge that if you lose a court battle, your insurer will pick up the tab. This means you won’t have to liquidate all your assets or declare bankruptcy in order to make good on a court judgment. Most life insurance agents, property-casualty agents, or registered investment advisors would consider that to be a very good investment, indeed.
- Second, when you purchase E&O insurance, you, in effect, pre-pay access to a vetted E&O insurance attorney who can jump into your case with no up-front due diligence on your part. The benefit of being able to quickly gain access to a trusted attorney cannot be overstated. At a moment of high stress, it’s extremely comforting to know you won’t have to screen and hire your own attorney. Your insurer-appointed lawyer will get on your case immediately.
- Third, reducing uncertainty and getting rapid legal help will greatly lower the inevitable stress and anxiety that comes from getting sued. If you’re like most financial professionals, you likely will be stunned to hear that a client is bringing legal action against you. Once the news sinks in, you may begin to experience the symptoms that follow trauma: difficulty sleeping, excessive worrying, uncontrolled anger, and a desire to self-medicate, among others. Investing in E&O insurance helps to counteract these negative symptoms by reassuring you that you are not alone in this crisis. Your insurer-appointed attorney and claims adjuster will help you get through it. And if you lose your case, your insurer will help you to defray the financial aftermath.
- Finally, investing in E&O insurance means you will have complete protection against a lawsuit-generated personal bankruptcy. If you’ve ever seen a friend or family member go through this process, you know how disruptive and upsetting it can be. Buying E&O insurance means you will likely not have to resort to bankruptcy in order wipe your financial slate clean.
With a significant “return on investment” from buying E&O insurance, it should be obvious by now that financial business owners need E&O insurance. It’s not a big investment in terms of cash outlay. But it’s a huge investment in terms of potential benefits to one’s business and personal security. And given this importance, it’s also crucial to make this purchase as quickly and efficiently as possible. This means purchasing it online through a firm such as EOforLess.com rather than working with an offline broker, who will generally take days or weeks to complete the transaction. With EOforLess, you can shop, apply, and pay for your E&O coverage in just a few minutes online. And printing your coverage confirmation will take just a couple minutes more.
So stop wondering about whether E&O insurance is a good investment for business owners. Take our word for it; it may well be the most important purchase you’ll ever make for your business, for your family, and for you.