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.
- 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.
- 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.
- 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.
- 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.
- 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.
