Errors and Omissions Insurance Cost: What Small Businesses Should Expect to Pay

Errors and omissions insurance (E&O insurance), often called professional liability insurance, is a necessary policy for most service providers. It pays for claims when the service provider is accused of not fulfilling the professional requirements of the job, either through an error or omission. Costs do vary for errors and omissions insurance based on coverage and industry. Let’s take a closer look. 

Understanding Errors and Omissions Insurance

Small business owners, namely service providers, are at risk of claims that say that they have not professionally done their services. This may be a professional mistake or error of some sort. It may be an innocent omission that results in financial loss. When this happens, an errors and omissions insurance policy will pay the claim as well as the legal defense of the claim. Without the insurance, the small business is left to pay losses out of revenues and reserves, which can be tens of thousands of dollars or more in damages. 

Factors Influencing the Cost of E&O Insurance

Various factors affect the cost of errors and omissions insurance, including: 

• Type of business: Your industry will be a key factor in the cost of insurance because some industries are more likely to have a claim or financial loss resulting from a mistake. 
• Coverage amount: The more coverage a small business has, the more it will pay for a policy.
• Claims history: Small businesses with claims are more likely to have future claims. Insurance companies factor this into the price of a policy.
• Location: Some cities and towns are more litigious than others. This will cause prices to go up in some areas. 
• Business size and revenue: The more business you do, the more likely you are to have a claim resulting from a mistake. This causes prices to go up. 
• Risk management practices: Service providers who provide clear contracts of service will fare better when it comes to costs than companies that don’t.
• Years in business: The longer you’ve been in business, the less likely you are to have a new claim. It suggests that you have developed the right business practices and expertise to avoid mistakes.  

Average Cost of Errors and Omissions Insurance by Industry

The average cost of errors and omissions insurance is $61 per month or $735 annually. Costs do vary widely based on the factors above. Here are some costs based on industry averages: 

• Technology sector: $807 annually
• Legal and financial services: between $500 and $3,000 annually
• Healthcare industry: between $500 and $1,000 per employee annually
• Real estate: $708 annually
• Consulting services: $662 annually

How to Reduce the Cost of E&O Insurance

There are some proven techniques to keep the premiums of professional liability insurance services low. 

Compare Multiple Quotes

To get the best premium quote on policies, shop the quote around with top carriers who will provide you with the coverage you need for a competitive price. You can find a great carrier using our connect to carrier link.

Implement Risk Management Strategies

Ask your insurance agent about risk management strategies that will help you reduce your premium for coverage. Risk management strategies such as ironclad contracts help reduce the number of claims a small business will incur and thus help reduce the cost of insurance. 

Bundle Insurance Policies

See if your carrier will give you a discount for bundling policies. Maybe getting a general liability insurance or workers’ compensation insurance policy will help you save as a bundle. 

Choose the Right Deductible

Getting a higher deductible will increase your responsibility in a claim and have you paying a bit more out of pocket. However, doing this will reduce the premium. Remember to only have a deductible that you can afford to pay. 

Maintain a Clean Claims History

Remaining claims-free is one of the best ways to reduce the premium costs of E&O insurance. Hire professionals who are committed to doing the job right the first time and help you avoid costly claims.

Common Mistakes When Purchasing E&O Insurance

There are some common mistakes when buying and maintaining errors and omissions insurance that include: 

• Choosing inadequate coverage: Not having enough coverage can leave you with an expensive claim that you are on the hook for. Whatever insurance does not pay, you must. 
• Overlooking policy exclusions: Know what the policy does and doesn’t cover. It won’t cover general liability claims or workers’ compensation claims. You’ll need another policy for that.
• Not updating your policy regularly: You should review your policy at least once per year to ensure you have enough coverage based on your growing business needs. 
• Ignoring customer contracts and agreements: An agreement you stick to can help you get out of claims where customers say you didn’t do what you were supposed to do. Always adhere to contracts and agreements. 

Frequently Asked Questions

How is E&O Insurance Different from General Liability Insurance?

Errors and omissions insurance covers professional mistakes, whereas general liability insurance covers general accidents such as slip and fall incidents. The general liability policy is not tied to your professional work but is instead based on your business operations. 

How Can Small Businesses Afford E&O Insurance?

A small business can afford professional liability insurance by shopping the policy around and getting a basic plan. You can also check with professional organizations to see if they have a group policy discount for your profession.

What Happens If I Cancel My E&O Insurance Policy?

When you cancel your policy, you cancel your coverage. You may, depending on the policy, still have coverage for claims made for incidents that happened when you were covered. Check with your insurance agent on that. 

Choose the Right Provider to Keep Errors & Omissions Insurance Costs Low

Choosing the right provider can go a long way to keeping premiums low. Each insurance carrier has a preferred industry that they like to write business in. This preference usually means that they understand the industry well and keep costs low for that sector.