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how much is errors and omissions insurance

What's even more devastating to a business than the financial loss a lawsuit brings? Arguably, it's the way a lawsuit can drag your small business client's name through the mud. Errors and Omissions (E&O) Insurance, also known as Professional Liability Insurance, helps protect your client's good name. It quickly addresses lawsuits brought by an unhappy customer who claims they lost money because of your client's (allegedly) inferior work, such as

  • Failure to deliver services on time.
  • Negligence in completing a service.
  • Poor, incomplete, or incorrect work.

In addition to the financial and reputational security E&O coverage brings, the policy may even be required for your client to land work contracts in the first place. That's why, for many small-business owners, E and O coverage is almost always worth the cost.

However, insurance providers' rates will vary based on a number of factors. You will need to do some comparison-shopping to get your client the best deal.

What Impacts the Cost of Errors & Omissions Insurance?

What Impacts the Cost of Errors & Omissions Insurance?

Insurance carriers weigh a number of factors to determine your client's rate. Some of the common considerations are..

  • Services offered. The type of service your client offers can affect their insurance costs. For example, one computer programmer might write code for video games while the other writes software for high-frequency options traders. The latter is probably going to pay more for their E&O coverage.
  • Client type. The more your client's customers have to lose, the more likely they are to sue when something goes wrong. Plus, your client will likely need higher limits to properly address their liability when working with these high-value clients. Both factors will raise premium costs. So the programmer writing code for the options traders in the previous example may have more exposure because his customers handle millions of dollars in investments.
  • Industry experience. While your client's industry plays a role in determining their E & O rate, so does their years of experience. Insurance providers often assume that a company with less experience presents more risk

    and vice versa.

  • Claims history. A prior claim is a red flag to insurance carriers. If your client has been sued over professional negligence before, they may end up paying more for E and O coverage.
  • Company size. Insurance companies also factor in the number of people your client employs when determining their rate. A larger company will likely have a higher premium because more employees mean more chances that someone will make an error.

Additionally, Errors and Omissions coverage has a few options that influence the cost of the policy. If your client selects either of the following options, they may pay slightly higher premiums, depending on the provider:

  • Prior acts coverage. All E&O policies are written on a "claims-made" form, which means the policy must be active both when the event happens and when the claim is made in order for your client to receive their benefits. For example, if a claim is made over work completed before the policy is active, the insurance company will not cover it. However, your client can add "prior acts" coverage to protect them from just such a claim.
  • A "defense outside limits" policy. Many E & O policies are "defense within the limits" policies. This means the cost of defense is subtracted from the limit available for the claim. Your client can opt for a "defense outside the limits" policy, which pays all of the legal expenses without dipping into the policy limit.

Comparing Errors & Omissions Insurance Rates Online

Comparing Errors & Omissions Insurance Rates Online

E&O policies are not "one size fits all." You'll need to compare rates from a variety of insurance providers if you want to get your client the policy that best suits their needs. But comparing costs is a painstaking task. You have to evaluate risks, determine carrier appetites, and fill out forms for each provider before you can even begin comparing policies and rates.

Insurance Noodle streamlines your work with a state-of-the-art online placement hub. Submit a single online application, and you'll receive accurate quotes from all available carriers within minutes.

Category: Insurance

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