What Is (E&O) EO Insurance?

Are you a service-based, small business owner without liability insurance?

If yes, getting errors and omissions (EO) insurance must be at the top of your priority list because it can provide you with the necessary financial protection against claims and lawsuits.

But what is E&O insurance? We’ve covered that question and more in this article, so keep reading!

What Does Errors and Omissions Insurance Policy Mean?

E&O insurance is a type of liability insurance that helps businesses against lawsuits if they make mistakes that lead to financial loss for clients.

Without this protection, covering claims can be financially distressing—even if it’s without merit!

What Does an Errors and Omissions Insurance Cover?

There’s no one-size-fits-all when it comes to E&O insurance coverage.

But typically, the insurance can cover expenses such as damages, legal and court costs (e.g., attorney fees and defense costs), and settlements in case of the following situations:

• Malpractice or professional negligence
• Not meeting specified deadlines
• Making mistakes or oversights
• Breach of contract
• Not disclosing key information about your service
• Delivering inadequate work to or getting unsatisfactory results for your client that lead to major financial loss

What Isn’t Covered by the Errors and Omissions Insurance?

E&O insurance can’t cover everything for a business, so it’s crucial to be informed of what this type of insurance doesn’t include.

Doing so will help you plan ahead in case you face illegal acts that this insurance can’t protect against.

So what does E&O insurance exclude?

It varies, but generally speaking, errors and omissions insurance can’t cover the following:

• Property damage or bodily injury
• Bankruptcy
• Copyright infringement
• Employment malpractice
• Data breach
• Work-related accidents or illnesses

Also, it’s important to note that asking the insurance company is the best way to find out what your errors and omissions policy excludes.

Who Needs Errors and Omissions Insurance Coverage?

Professionals that provide consulting and service-based businesses are the most suited for this type of liability insurance.

So if you’re a business owner, you can get errors and omissions insurance from any of the major commercial insurers.

This insurance is usually customized based on the risk levels of different types of businesses.

For instance, a building designer might need more considerable E&O insurance coverage than a printing company since the former is more likely to make mistakes and get sued.

Here are some examples of industries and businesses that need E&O insurance:

• HVAC contractors (ex: electricians and plumbers)
• Educators
• Consulting firms
• Real estate agents
• Engineering firms
• Event planners
• Travel agents

It’s also important to note that E&O insurance isn’t suitable for businesses operating at home offices.

How Much Errors and Omissions Insurance Coverage Do You Need?

E&O insurance can cover expenses up to a specified amount, depending on the policy terms you agreed on.

So you probably want to determine the amount of E&O coverage you need.

On average, most businesses have a claim limit of $1,000,000.

But generally speaking, you should at least cover the bare minimum, which will be around $250,000.

However, if your business is more on the risky side, this minimum amount of errors and omissions coverage won’t be enough.

For instance, real estate professionals have a high risk of getting sued, so their E&O insurance coverage ranges between $500,000 and 1,000,000.

So whatever your case might be, you should always figure out how much coverage you require by consulting several insurance providers.

How Much Does Errors and Omissions Insurance Cost?

Based on a study by Insureon, around 50% of business owners pay anywhere between $500 and $1,000 annually for E&O insurance policies.

In addition, almost 20% of business owners pay less than $500 annually to obtain coverage.

Besides the type of industry, you can predict the cost of errors and omissions insurance based on factors such as:

• Number of past claims you got: You’ll pay higher E&O insurance rates if you got sued many times before.
• Business location: Some states have high minimum coverage requirements, such as Tennessee, which has a minimum E&O coverage of $500,000.
• Your business’s annual revenue, size, and number of employees: Small businesses pay lower policy costs.
• Coverage limits of the E&O insurance policy: High coverage limits come with higher policy costs.
• Employee training: If your employees are trained on how to reduce risk, you’ll pay lower E&O policy fees.

Here is a comparison table for the median E&O cost according to the profession.

Comparison table

Is There a Difference Between Errors and Omissions Insurance and Professional Liability Insurance?

No, you’ll often hear the terms E&O insurance and professional liability insurance used interchangeably because they offer the same coverage.

The reason is that different industries adopted different terms to describe this policy.

For example, accountants and architects prefer to use the term “professional liability insurance,” while tech and real estate firms prefer to use the term “errors and omissions insurance.”

Also, most legal and medical firms like to use the term “malpractice insurance.”

What if My Errors and Omissions Policy Expires?

Similar to most insurance policies, E&O insurance lasts for a year.

Luckily, if you miss renewing it by the end of the year, you get a one-month grace period.

What if you miss the grace period too?

Then the eo insurance won’t cover you anymore in case you get any professional liability claims.

We always recommend that you renew your errors and omissions insurance at an earlier date.

This way, you’ll get ample time to reassess the policy and make any necessary changes to it.

Bottom Line

Most small business owners providing professional services should get errors and omissions insurance to cover claims they might get from alleged mistakes.

This will help them save on costly legal expenses that might lead to substantial financial losses.