6 QUESTIONS TO ASK YOUR AGENT ABOUT YOUR E&O POLICY
So you’re getting an Errors and Omissions policy, eh? Good choice – it’s the only policy that covers your professional liability (and it’s better to be safe than sorry, right?).
But not all E&O policies are created equal, so it's important to know what you're getting before you sign the dotted line. Your insurance agent can guide you through the ins and outs of an effective Errors & Omissions policy, but it's still a good plan to come to your agent with some idea about what questions you want answered.
To get you started, here are six questions to ask your agent so you can be certain you're choosing the policy that fits your needs.
1. Does this policy offer claims-made coverage?
Almost all E&O policies operate on a claims-made basis. Claims-made coverage means that in order to receive your benefits, your policy must be active when…
- When the alleged incident first happened.
- When the claim over the initial incident is filed.
That means your policy provides coverage only when those two conditions are met. In other words, if an event happens while your policy is active, but a lawsuit from that event doesn't occur until years later when you no longer have that policy, that policy won't cover you. This is why canceling your claims-made E&O policy may not be a good idea.
Sometimes, a claims-made policy can cover events that occurred before you even purchased the policy. Your policy may need some riders to get that kind of retroactive coverage, so ask your agent about it.
2. What's the limit? Any sub-limits?
The limit for your Errors and Omissions Insurance policy is the maximum amount that the insurance company will pay out for a claim of that type. This may be broken up into sub-limits. For example, a General Liability policy may have a $1 million limit but only provide $10,000 in coverage for immediate medical costs. For an E&O policy, you'll want to know if there are any sub-limits for court costs or business interruption costs, for example.
The total limit is important depending on the size of your business and the type of work you perform. Think about a worst-case scenario. Would this insurance policy cover all the damages, lawyer fees, etc.? Don't settle for a cheap E&O policy that cuts corners where you need its coverage most.
3. What's my deductible?
You're probably already familiar with the concept of a deductible when it comes to healthcare policies, but in case you're not, the deductible refers to how much you'll have to pay out of pocket before your insurance benefits kick in. For example, if your deductible is $1,000 and a claim costs $5,000, you are responsible for paying $1,000 and the insurance company will cover the remaining $4,000.
A high deductible can be advantageous if you don't think you'll face many claims, but you are worried about a few very large claims. A low deductible might be better if you could face frequent but inexpensive claims. Be sure to ask your agent which option is appropriate for your business.
4. Will the insurer provide a lawyer if I'm sued?
Some Errors and Omissions Insurance policies stipulate that the insurance company will not only cover the cost of a lawyer, but it will also provide the lawyer for you in the event of a lawsuit. Some policies require you to find your own lawyer and will compensate you. Ask your insurance agent which option your policy offers (and be sure to read about how E&O Insurance works in a lawsuit).
5. Will my E&O policy cover me if I sue someone?
Though your E&O policy can cover professional liability lawsuits made against your small business, it doesn't cover your expenses if you choose to sue someone else. If someone causes damage to your business, you may be able to recoup your losses through another policy, such as Property Insurance. Again, ask your agent about it.
6. What happens if I miss a payment?
Many policies offer a grace period when a policy expires, which means you may have coverage for a certain amount of time if you forget to immediately renew. In general, though, if you don't pay your premiums, you lose coverage, and you don't want that. Ask your agent about your payment method and work out a payment schedule that makes sense for your budget. (You can learn more about the cost of E&O here.)
Think you're ready to apply for coverage? Fill out an online insurance application with us, and we'll pair you with an agent who can field all your questions and guide you toward the policies that fit your business's needs. Plus, you'll get to impress your agent with these questions and sound super knowledgeable.