Sometimes in business, especially your personal small businesses, mistakes happen. These mistakes would often cost your business a lot, especially losing money. For these reasons, an error and omission insurance could be the most useful insurance package for you to purchase.
In this post, you’ll learn how errors and omissions insurance works to help you decide whether it’s best for you. Also, you’ll get an overview of errors and omissions insurance and how it applies to small businesses. Therefore, keep reading until the end so you won’t miss a single detail.
What is Errors and Omission Insurance?
Errors and omissions (E&O) insurance may be beneficial if you make mistakes in professional services while conducting business. Also known as professional liability insurance, it helps cover the costs of a claim a client files against your organization.
Errors and omissions insurance covers legal defense costs, judgments, and settlements. Hence, if you don’t have errors and omissions insurance, you’ll have to pay out of pocket. Furthermore, this applies if a customer believes you owe them money because of a mistake.
If your business provides professional services or advises clients, errors and omissions insurance may be a suitable fit.
What types of Businesses Needs Error and Omission Insurance
Certain states and licensing boards require firms to have errors and omissions coverage. For example, more than ten jurisdictions require real estate brokers to show proof of their insurance before getting a license.
In addition to real estate agents, the following firms can benefit from professional liability insurance.
- Public relations firms and accountants
- Graphics designers
- Designers of interiors
- Consultants in business and management
- Technology experts Tax accountants
- Travel agents
Every type of company makes errors. In addition to genuine errors and omissions in work, here are additional flaws that could lead to suing your organization:
- Misrepresentation
- Violations of good faith and fair dealing
- Negligence
- False or inaccurate information
You may be liable for legal fees, such as court costs and attorney fees, and any settlements or court judgments. Also, you may face disciplinary hearings from a regulatory or licensing organization, depending on the claim. Due to the time you spend in court while defending yourself against an errors and omission case, you may lose money. Errors and omissions insurance will cover all of these costs.
What Doesn’t Errors and Omission Insurance Cover?
This insurance doesn’t cover employment-related activities such as wrongful termination or harassment. You’ll need employment practices liability insurance to pay these costs.
E&O will not cover patents or trade secrets you took without authorization if they sue you. A general liability policy may provide some protection if you’ve stolen intellectual property.
Your company’s errors and omissions coverage would not cover bodily harm or property damage. These claims would necessitate the purchase of commercial liability insurance coverage. Workers’ compensation insurance covers diseases and injuries that occur at work.
Personally identifiable information that your company loses or steals doesn’t receive coverage under errors and omissions coverage. However, a data breach insurance policy may cover these expenses.
How much do Errors and Omission Insurance Cost?
Several variables influence the cost of mistakes and omissions insurance, including:
- The number of employees and the company’s size
- The company’s profits
- The kind of your company and the risks you face
- State and location of your company
- Previous statements made by the firm
- The limits of the E&O coverage you choose
Here are some details on E&O insurance, according to Insureon.
- The average cost of errors and omissions insurance is $59 per month.
- For 51% of small business owners, E&O insurance costs between $500 and $1,000 per year.
- For 18% of small business owners, E&O insurance costs less than $500 per year.
If you work in the technology field, you can purchase an errors and omissions policy specifically for work. Technology errors and omission insurance can pay legal and other costs from claims customers make.
Here are some instances where technology E&O insurance would be useful if:
- the software program you sold had glitches and ruined a client’s billing data
- the equipment you installed malfunctioned and a customer was unable to receive orders
- a website you created looks too similar to a competitor’s website
- you miss important deadlines when developing a new technology product and this leads to a loss of profits
- you sell the wrong product to a client that causes their system to crash
Benefits of Error and Omission Insurance
- Professionals strive for maximum caution when it comes to procedures, communication, documentation, and other elements of their organization. However, any business will have a brief lapse that could result in a lawsuit.
- It’s a brilliant idea to safeguard your firm with Errors & Omissions Insurance to guard against unpleasant lawsuits.
- Protection from Unintentional Errors: Clients may sue you or take legal action if the professional’s skills aren’t up to par.
Technology Errors and Omission Insurance
If you work in technology, you might be able to get an industry-specific errors and omissions policy. Customers’ technology errors and omissions insurance claims may include legal and other costs.
The following sorts of IT experts may benefit from E&O insurance:
- Electronic component manufacturers for computers
- Consultants in computer science
- Internet service providers
- IT professionals
- Software developers and website designers
Technology Errors and Omission Insurance vs. Cyber Liability Insurance
A cyber liability insurance policy can help protect a business against data breaches and cyberattacks. Assume your company’s database contains some confidential client data. If a customer files a claim against your company, cyber liability insurance might help cover the costs.
Technology errors and omissions insurance, on the other hand, would cover the carelessness and product failures of your technology company.
Your technology E&O coverage kicks in when you have a hand in what went wrong for a customer. However, you require cyber liability insurance when a breach or cyberattack comes against your company.
Though you may interchange them, it’s best to know which suits your company the most. Making the perfect decision will help you cut down on costs.
The prices for both types of insurance highly depend on the coverage you want to buy. It also considers other factors earlier mentioned.
