What is E&O Insurance and What Does It Deal With?

As providers of E&O insurance, EOforLess.com admires the time and effort financial professionals invest in their firms. We also admire their courage in going out on their own when the majority of people today opt for the security of working for someone else. And we really admire the confidence entrepreneurs have in their own abilities. They believe the future will be theirs, and in most cases, it will!

But in watching entrepreneurs launch new businesses for years, we also know they can be prone to hubris. They often bite off more than they can chew, while also believing nothing bad will ever happen to them. The first trait can lead financial professionals to make mistakes, and the second to foregoing E&O insurance. Together, they can spell big problems for entrepreneurs who get embroiled in client disputes.

If you think your company can do without E&O insurance, think again!

Now, don’t be offended by our plainspoken language. We are coming from a place of deep respect and admiration for the entrepreneurial spirit. We want you to succeed and fully expect you to. But we also realize there’s a chance you’ll commit an error or omission, which will generate a client financial loss. And if the mistake or omission is serious enough and the client is angry enough, there’s a chance you’ll get sued—and lose. So the question is, how much will you be on the hook for and where will you find the money?

Many financial professionals decide to either ignore the risks of doing business or to assume nothing bad will ever happen. Others will do the responsible thing and insure themselves against the potential negative consequences of getting sued. They buy E&O insurance so they can literally sleep well at night.

What does E&O insurance provide? It provides a promise of a financial backstop should you get sued. It generates funds to hire an attorney to defend you in court, as well as cash to cover any damages a judge may order paid to the plaintiff. Finally, it also will pay for court costs should you lose.

But the biggest thing E&O insurance provides is stress reduction in case a client brings an action against you. One of the first things financial professionals worry about is what attorney to hire to mount a defense. Sure, most towns have multiple attorneys available. But defending insurance agents, financial advisors, stock brokers, and real estate brokers/owners is a specialized discipline. Most communities won’t have a lawyer available with the expertise to handle your case. So what will you do then?

The other concern is to secure cash quickly to pay for your attorney’s retainer. Since lawyers often charge hundreds of dollars per hour, you can imagine that reserving a significant block of their time at hundreds of dollars per hour can produce an large retainer fee. With E&O insurance, you will not be personally responsible for paying this and future fees billed to your case.

Finally, should you elect to defend yourself against an E&O insurance claim, you would have to manage all interactions with the plaintiff’s attorney as well as with the judge. Since you also have your regular job duties to handle, defending yourself can quickly produce a time crunch, leading you to neglect your business duties. Less time working your normal job means less money in your pocket . . . at a time when you need more for legal expenses.

Errors & Omissions Are Inevitable, but the Responsibility Is Yours

Here’s the bottom line: errors & omissions are inevitable, but the responsibility is yours. By “responsibility” we mean ethical financial professionals must be accountable for their actions. If they make a mistake, they need to own up to the problem they caused and reimburse their aggrieved client for their losses. If they’re falsely accused of an error, they owe it to themselves to mount an aggressive defense so the client doesn’t benefit financially from a false or nuisance claim. By having E&O insurance, professionals assure they can follow each scenario through to its logical conclusion so that justice is done. Without E&O insurance, the risk is high that financial disputes won’t be litigated and settled quickly and fairly, whoever is at fault.

Going without Errors & Omissions is a Faulty Idea

Hopefully, it’s clear that going without errors & omissions is a faulty idea. Solution? Find comprehensive, yet affordable E&O insurance protection designed specifically for your license type. Also, consider shopping for coverage at an online E&O marketplace such as EOforLess.com. This will allow you to find an appropriate policy with a minimum of time and effort. Here are some pointers to consider as you begin the process of buying E&O insurance online.

First, take a look at group insurance. These will likely be the most affordable E&O insurance plans because they’re inherently more efficient than individual policies.

Second, look for companies that offer streamlined E&O insurance underwriting. In other words, find firms that are willing to issue coverage based on your answers to a limited number of risk-assessment questions. Ideally, they should also consider your preferred-risk status when determining the premium they charge.

Third, think about buying online vs. buying through a traditional bricks-and-mortar insurance agency. The difference? The former will be quicker and less involved from a process standpoint; the latter more complicated and time consuming. However, for a financial professional with sub-agents or advisors, it may be necessary to deal with a broker. Just budget extra time for filling out a complicated insurance application and for the broker to shop your applications at a number of different insurers before returning with multiple quotations for your review.

In short, don’t sweep your E&O liabilities under the rug. Own up to them as a responsible, forward-thinking entrepreneur. If you’re as good as we think you are, then chances are nothing bad will happen. But in the unlikely event you get sued, you’ll know your business and assets will be well protected. Regardless of a court’s judgment, you will be able to keep doing what you love most—running your own show and reaping the rewards for doing it!

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