#1: You need it.
In today’s economy, it’s just too risky to do business without errors and omissions (E&O) insurance. If you’re ill equipped to absorb $20,000 or more to settle a customer claim or spend $20,000 to $100,000+ to fight it, you definitely need E&O insurance.
#2: You’re probably paying too much for it.
Problem is, most carriers charge a “one-size-fits-all” premium. That means low-risk insurance agents or financial advisors pay the same premium as higher-risk advisors.
#3: You can pay less for it.
At least several insurance companies rewards low-risk advisors by charging lower premiums. (See EOforLess.com for details.)
#4: Your policy must have these two features.
Your errors-and-omissions policy should provide retroactive coverage, as well as an extended reporting period. The former means you’ll be protected going back to your first continuous period of E&O. The latter means you (or your heirs) will be covered for errors and omissions while you were working, even after you retire, change careers, become disabled, or die.
#5: You should customize your policy.
Make sure your E&O policy covers your specific job activities. For example, if you are an investment advisor representative, then a standard life & health agent policy won’t do. In addition, know the specific limits of liability for each claim, as well as your annual aggregate, and total aggregate for all advisors in the program.
#6: You should always buy E&O insurance from a top rated insurance carrier.
Avoid insurers with low marks from the various rating agencies. Also watch out for so-called “risk-sharing plans.” No state insurance departments check their books or require them to hold minimum reserves. If such a plan fails, you will be left holding the bag.
#7: Your policy should be free of handcuffs.
Be careful when considering FMO-sponsored E&O insurance. It may lock you into the FMO by making your coverage contingent on staying with them or on writing a certain level of business with one of their carriers. Also, watch for coverage exclusions when you sell products outside the FMO.