Errors and Omissions Insurance
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Errors and omissions insurance for independent contractors

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Errors and omissions insurance

Errors and omissions insurance (E&O) helps cover the cost of a lawsuit if a client claims your work was inaccurate, late, or never delivered. It’s sometimes called professional liability insurance.

Why do independent contractors need E&O?

Errors and omissions insurance, also called professional liability insurance, provides crucial protection for independent contractors who make a living off their expertise. You might need a professional liability policy because:

It protects your business from legal costs. Independent contractors who provide expert advice or a professional service are at risk of lawsuits from dissatisfied clients. E&O can pay your legal costs if a client accuses your business of professional negligence or an error that causes them financial harm.

State laws may require it. Real estate agents and brokers are required to carry an E&O policy in certain states. Lawyers, doctors, and healthcare professionals may also need to carry malpractice insurance – their industry term for this insurance policy.

Your clients might require it. As with general liability coverage, some clients may require you to carry E&O insurance before they sign a contract with you. They gain peace of mind knowing they won't be held responsible for your mistakes or alleged negligence.

This policy can raise your company above the competition. For example, a general contractor might win a client contract because their E&O insurance coverage shows they'll be able to weather a lawsuit if a mistake leads to financial loss.

What type of liability coverage does E&O insurance provide?

Errors and omissions insurance covers the cost of lawsuits related to work mistakes, including:

  • Failure to deliver promised services
  • Negligence in providing professional services
  • Incorrect or incomplete work
  • Errors and oversights

Independent contractors aren't immune to making these kinds of mistakes, and you could still be sued even if you're not at fault. Even the most careful professional might have to muster a legal defense for a frivolous lawsuit, which is also covered by an errors and omissions policy.

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When are independent contractors liable for work mistakes?

Independent contractors can be held liable for mistakes that negatively impact their clients or the businesses they work for.

For example, say an IT consultant hired by a larger company recommends a much-hyped software as a service (SaaS) to one of its clients. Unfortunately, the recommended SaaS doesn't have a reliable backup feature and the client ends up losing valuable data. The client files a professional negligence lawsuit against the company and the consultant, too.

In a situation like this, contractors should have the insurance protection necessary to pay for their legal costs, including any settlements or judgments rewarded to the client. This lessens the burden on the businesses you work with, and could make you the preferred choice over an uninsured contractor.

Does E&O cover independent contractors hired by your business?

Errors and omissions insurance and other liability policies often don't cover mistakes or accidents involving independent contractors or subcontractors working for your business. To protect yourself from lawsuits, you may want to require contractors to carry coverage.

Other policies, such as a commercial general liability policy, may let you add contractors to your policy as an additional insured, but that's not the case for errors and omissions coverage.

How much does errors and omissions insurance cost?

Businessperson calculating the cost of professional liability insurance.

Errors and omissions insurance costs a median of $59 per month. Your cost is based on a number of factors, including:

  • Policy limits and deductible
  • Claims history
  • Industry risk factors
  • Business size
  • Day-to-day operations

What other types of business insurance do independent contractors need?

Independent contractors and small business owners might need additional commercial insurance, such as:

Not sure which types of insurance you might need? Chat with a licensed insurance agent to find out.

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Who needs professional liability insurance?
Professional liability insurance is a must-have for many businesses, especially if you provide a service. Read on to see if this coverage is right for you.

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