Errors and Omissions Insurance | E&O Insurance

In today’s fast-paced and competitive business world, errors and omissions (E&O) insurance has become a critical “How Much Is E&O (Errors and Omissions) Insurance?” component of risk management for businesses across various industries. This comprehensive guide will delve into the nuances of E&O insurance, shedding light on its significance, factors affecting its cost, and the benefits it provides.

What Is E&O Insurance?

E&O insurance, also known as professional liability insurance, is a specialized policy designed to protect professionals and businesses against legal claims that arise due to professional errors, negligence, or omissions during the course of their work. It covers the cost of legal defense and settlements, which can be substantial.

Errors and omissions insurance, also known as E&O insurance and professional liability insurance, helps protect your business from lawsuits that claim you made a mistake in your professional services. This insurance can help cover your court costs or settlements, which can be very expensive for your business to pay. Learn more about what errors and omissions insurance coverage is.

Understanding Errors and Omissions (E&O) Insurance

Errors and omissions insurance is a form of liability insurance. It protects companies against the full costs of a claim made by a client against a professional who provides advice or a service such as a consultant, financial advisor, insurance agent, or lawyer. It is a common form of business insurance that protects an entity should someone accuse that company of making a mistake.

Companies often obtain E&O insurance if they provide services to a customer for a fee. This form of insurance can be obtained from many major commercial insurers. Companies run out of a home-based office must buy a separate policy; the company can’t get errors and omissions insurance under a homeowner’s policy.

Who Needs Errors and Omissions Insurance?

You should consider errors and omissions in insurance coverage if you provide services to clients or customers, like real estate agents or accountants. Some other examples of small businesses that need this coverage include: 

• Advertising firms
• Marketing agencies
• Website developers
• Barbershops
• Publishing companies

How Much Does Errors and Omissions Insurance Cost?

How much is errors and omissions (E&O) insurance? Average costs for E&O coverage for small business owners range from $500 to $1,000 per employee, per year. So, if your business has 50 employees, you can estimate your errors and omissions premium to be between $25,000 and $50,000 annually. 

Remember that this is only an estimate. Don’t forget that other factors like your location, type of business, and claims history will determine your actual rate.

You can get insurance quotes through trusted insurance companies, like us. We’re here to answer your questions and walk you through what each type of business insurance covers. We can also help you choose the right aggregate limit for your coverage.

Determining Your Cost for Errors and Omissions (E&O) Insurance

How much is E and O insurance? Errors and omissions insurance costs can depend on a variety of factors, like your:

• Business size, because depending on your number of employees, you may have higher risks. Small businesses typically have fewer employees and lower rates.
• Revenue, because more money can come with a higher risk of lawsuits.  
• Industry and the types of risks you face. For example, a construction company may have a higher-than-average error and omission rate because their mistakes can result in property damage.
• Employee training, because teaching your employees how to reduce risk can lower your insurance rate.
• Contracts, because depending on how they’re written, they can either increase or decrease your exposure to liability.
• Location, especially if you’re in a state with higher minimum coverage requirements.
• Claims history, because you can expect to pay higher E&O insurance rates if you have a history of lawsuits.
• Coverage limits, because policies with a higher limit are likely to cost more than policies with lower coverage limits.

What Does Errors and Omissions Insurance Cover?

Errors and omissions insurance can help cover mistakes in your professional services provided to customers. For example, if you own an accounting firm and your financial advice causes them to lose money, this coverage can help pay for any claims they file against you. 

Errors and omissions insurance is an important coverage to have. Because even if your business didn’t make a mistake, a client or customer can still sue you. Without coverage, you’d have to pay for these costs out of pocket:

• Attorney fees
• Legal costs
• Judgments
• Settlements

Policy limits determine the cost of E&O insurance

The cost you pay for errors and omissions insurance (also known as professional liability insurance or malpractice insurance) depends on your coverage limits. Most small business owners (63%) opt for an E&O policy with a $1 million per occurrence limit and a $1 million aggregate limit.

E&O liability coverage helps pay for client lawsuits over quality of work, such as missed deadlines, work mistakes or errors, and accusations of negligence. This includes legal fees like attorney’s fees.

Businesses that offer professional services or advice that affects a client’s income should consider higher policy limits as they’re more susceptible to client lawsuits. Higher limits cost more, but they cover more expensive claims.

How can you avoid making claims on your errors and omissions policy?

A good risk management strategy to reduce E&O claims includes:

• Detailed contracts with clients
• Clear client communication
• Prompt resolution of complaints
• Checking (and double-checking!) your work for errors
• Strong cybersecurity measures to reduce cyber risks

You can’t eliminate risk. If that were possible, insurance companies would be out of business. But risk management helps you sidestep common pitfalls that lead to liability claims and higher errors and omissions (or professional liability) insurance costs.

Frequently Asked Questions

How much should an E&O policy cost?

On average, errors and omissions insurance costs $61 per month, or about $735 annually. Most policyholders can expect to pay between $50 and $100 per month for their errors and omissions insurance coverage. Our figures are sourced from the median cost of policies purchased by TechInsurance customers.

Is E&O expensive?

What is the average cost of errors and omissions insurance? Small businesses pay an average premium of $61 per month, or about $735 annually, for errors and omissions insurance.

Why is E&O insurance so expensive?

If your business has a past peppered with claims, expect your E&O costs to be higher than claim-free companies. Remember, underwriters use facts to analyze how risky your business is to insure. The more claims you’ve filed, the riskier you come across to an insurer.

Is E&O insurance worth it?

These requirements vary by state and profession. Even if E&O insurance is not required in your state, it’s still worth considering. Without this coverage, you could face hefty out-of-pocket expenses if you get hit with a lawsuit for a mistake.

Is E&O insurance refundable?

The E&O policy will automatically be canceled if an agent’s contract is terminated during the year. The agent will receive a pro-rated refund of the policy premium based on the termination date. Active agents may also submit requests to have the policy canceled during the year.

Conclusion

In a world where mistakes and omissions can lead to costly legal battles, E&O insurance is an essential tool for businesses and professionals to mitigate financial risks and protect their reputations. The cost of E&O insurance is influenced by various factors, making it important for businesses to carefully consider their needs and budget when obtaining this crucial coverage.