Running a business comes with its fair share of challenges. Workload sometimes increases for small businesses, and you alone are responsible for juggling multiple aspects at once. Due to this structure, mistakes tend to happen no matter how careful you are, how many highly skilled employees you hired, and the number of precautions you take.
However, not all mistakes are minor incidents and accidents that you can solve in under 20 minutes. Some of them might have severe repercussions for your business, both legally and financially. That’s why covering potential legal costs, and loss of earnings with an errors and omissions (E&O) insurance policy may be necessary if you’re looking to keep your business afloat in the long run.
What Is E&O Insurance
You may have related personally to the previous paragraph, but you might still be wondering; what is E&O coverage?
E&O insurance is a type of professional liability insurance that helps protect you from lawsuits accusing you of errors in your professional services and products. In most cases, your insurance company would end up providing coverage for legal costs as well as any settlements that you and the third party agreed on or the court ruled. Either way, not having an active E&O insurance policy could quickly leave you hundreds of thousands of dollars in debt for a single mistake.
Errors and omissions that your E&O insurance policy covers include negligence, misrepresentation of your product or service, providing clients with inaccurate advice, and any violation of good faith in fair dealing practices. In addition to legal fees and settlements, E&O insurance can also provide coverage for loss of revenue during your trial and any damages you might’ve sustained from the whole incident.
Who Needs E&O Insurance?
E&O is a basic form of insurance coverage for businesses in a variety of industries ranging from real estate and accounting firms to graphic design and advertising agencies. Any business where mistakes could affect clients and customers needs an E&O insurance policy. However, the need isn’t limited to registered businesses. Both independent contractors and freelancers should also purchase an E&O insurance policy to cover any mistakes they may commit while servicing a client.
Another essential thing to know is the cost of the legal dispute is rarely in proportion to the company’s size and annual revenue. So, while large corporations might easily pay for their legal fees and settlements without going into debt, the same doesn’t apply to small businesses and startups. A single lawsuit could take your small business under, making it particularly important to get E&O insurance early on.
How to Get E&O Insurance?
Since the demand for E&O insurance is high in nearly all industries, you can get it from various sources, from insurance brokers and insurance dealers to registered investment advisors and even financial planners.
Depending on your industry, level of risk, and the safety and security standards you enforce in your business, your E&O insurance policy could range anywhere from $500 to $1000 per employee annually. The bigger your business and the higher the risks in your industry, the more you pay for your insurance.
As for discounts, it can be hard to get E&O insurance as part of an insurance bundle depending on your industry, provider, and location. For example, umbrella insurance policies can’t be used to boost your E&O insurance.
Things to Consider for Your Small Business
If you’re a business owner in one of the previously mentioned industries and don’t have an E&O insurance policy, it’s time you start planning for one. The harm your small business could go through during a legal battle can be devastating for your finances as well as your business’s reputation.
That’s especially true if you’re a business-to-business (B2B) company because damages on your client’s end would be more significant if they were a business instead of an individual. Additionally, B2B companies often have fewer overall clients than B2C companies, so a damaged reputation could end your business.
On a final note, running a small business is stressful in more ways than one. But getting an insurance policy that covers your mistakes can relieve a lot of stress and allow you to focus on growing your business instead.
Insurance is an Investment
Similar to all necessary business expenses, insurance policies tend to be an investment for the long run. While you might be tempted to postpone such a costly expense until your business is more established, that’s ill-advised. After all, it only takes one mistake for your entire hard work to go for nothing in addition to immense debt.