If you are looking to purchase professional liability insurance, you might have also heard of errors and omissions insurance (also known as E&O insurance). Some vendors might offer both types of coverage in the same package, making it difficult to discern which type of coverage you need.
This guide will explain what each type of coverage entails and how it differs from the other so that you can make an informed decision about the protection you need.
What is E&O insurance?
An E&O policy covers claims that a professional wasn’t thorough or accurate in their work, which could lead to errors, mistakes, or omissions that affect another party negatively. For example, if you missed an error on a report and your client lost money because of it, they might sue you for damages under a theory of negligence; with an E&O policy (which is usually purchased by individual contractors), you would be covered for those costs in such situations.
Errors & omissions insurance protects professionals from financial loss due to errors they made while working on a project. Contractors who work on major projects often need to purchase an E&O policy to protect themselves financially should something go wrong with their project and end up costing them extra time or money as a result.
What does professional liability cover?
To put it simply, professional liability insurance covers you if a mistake made in your profession ends up hurting someone—or costing them money. For example, if you provide an inaccurate tax estimate to a client, which ends up increasing their tax burden, that’s when your policy would kick in. Errors & omissions policies also typically cover things like not getting a client’s informed consent before beginning work or not complying with applicable laws (for example, failure to register with applicable state boards before practicing).
So what does that have to do with errors & omissions insurance versus professional liability insurance? Let’s dig deeper into each of these types of policies so you can make an informed decision about which one is right for you as an entrepreneur.
How much should you get?
Errors and omissions (E&O) insurance is a type of liability insurance that protects you against lawsuits over mistakes or errors in your work, but it isn’t without its controversy. Some critics say it doesn’t protect you enough, while others complain that buyers pay too much for coverage they don’t need or understand. How do you figure out what E&O coverage is right for you?
In short, it depends on your industry, your services, and how much risk of a lawsuit you’re willing to take on—all of which can be hard to know until an issue arises. To get started, here are some basic questions to ask yourself about your business and potential risks.
Is my business particularly vulnerable to litigation? Do I have employees who could potentially file suit against me? If so, how likely is it that one will?
Are there particular laws in my state or industry that would make me more susceptible to litigation than other professionals? If so, what are they and why might I be at risk? Are there any specific areas where I may cause issues more often than other professionals in my field?
Is it worth it to pay for PIL when you have E&O coverage from your agency?
There are two main types of insurance for small business owners: Errors & Omissions coverage (E&O) and professional liability insurance (PIL). But do you know what they mean? Are they interchangeable terms?
If not, how do they differ from one another regarding your business needs? In today’s post, we’ll provide a brief overview of E&O and PIL policies, then take a deeper dive into how to make an informed decision on which policy may be right for you.
Can you buy PIL separately from your agency’s E&O policy?
It depends on your agency. In general, a professional liability policy (PIL) is a stand-alone policy that provides you with coverage for some or all of your legal expenses, should an issue arise, such as a lawsuit or complaint against you or your business, or if there is an error made in servicing your clients. An E&O policy is meant to cover claims arising from errors and omissions, including breaches of contract.
The concept comes from tort law which is referred to as malpractice. However, it doesn’t necessarily have to be construed as something done wrong; if an attorney fails to follow up on something they agreed to do, that could also be considered malpractice in certain cases.
How much do errors and omissions policies cost annually, in general?
You can expect to pay between $500 and $2,000 annually for E&O insurance (though costs do vary). The cost of coverage is generally dependent on your line of work, industry type, and the number of employees (among other factors). You should ask your broker or agent for an exact quote based on these variables. Note that annual premiums paid to agents typically include a small one-time set-up fee.
For example, if you buy a policy through SFP®, that cost would be baked into your ongoing premium payments; it’s not a separate fee you have to track down every year—a bonus! How much does professional liability insurance cost?: On average, professional liability policies range from $1,200 to $5,000 per year (again, costs vary depending on your business).
Like with E&O policies, what you end up paying is contingent upon your industry and employee count. As mentioned above, when purchasing P&C policies through SFP®, there are no additional setup fees or hidden charges.
There are also no gotcha clauses like those in some traditional P&C policies where an event that happens years later could suddenly result in the cancellation of coverage without warning or reason.
How can an agency find an error and omission carrier they trust?
By getting quotes from multiple carriers to shop around for a policy that fits their needs, agencies can save money without sacrificing quality. It’s also essential to review other aspects of a policy before committing to it; as any errors or omissions agent knows, coverage terms can vary wildly between providers.
A carrier might not offer specific types of professional liability coverage needed by an agency, so you need to be aware of what risks your provider is willing (or unwilling) to cover for you before signing up for a plan that might not fulfill your business needs down the road.
Other areas agents should pay attention to include deductible amounts, limits on claims made per year, and whether or not there are separate coverages available specifically for practice errors or omissions.