In a perfect world, no one would make any mistakes. Projects would always be finished on time and products would arrive exactly as ordered. In the real world, though, people make mistakes. Business owners purchase errors and omissions insurance to help cover their costs in case they are sued. The average errors and omissions insurance cost depends on the type of business and the amount of coverage.
Understanding Errors and Omissions Insurance
Most businesses carry general liability insurance, which covers injuries that occur on your business property, property damage that happens while you or an employee are doing work and lawsuits related to advertising.
Errors and omissions insurance, also known as E&O insurance, is a more specific type of liability insurance that provides coverage for situations not included in your general liability insurance. It provides coverage if you’re sued due to an error or if you’re sued due to not meeting service obligations.
For example, if you own a printing company and an employee mistypes the phone number for a client on an advertisement, the client could sue due to lost business from the error. E&O insurance would cover the legal costs associated with the lawsuit up to the policy limits.
Although the E&O insurance cost might seem like an unnecessary expense, any business that provides a service for a fee should consider adding the coverage. Industries where E&O insurance coverage is common include financial services, engineering and trades such as plumbing and electrical work.
Deciding on E&O Insurance Cost Options
When an insurance company prepares an E&O insurance quote, it considers several factors. For example, a plumbing company will have different risk factors to take into account than an insurance company. The size of the business, the location of the business and the number of employees also influence how much a policy will cost.
You can also compare different policy coverage amounts. Policies typically have two coverage limits: a set limit for any one claim and a set limit that can be paid out over the life of the policy. A $250,000/$250,000 policy, for example, will pay out up to $250,000 for any one claim and up to $250,000 over the life of the policy. A $1 million/$2 million policy will cost, on average, just over $2,000 per year. A $5 million/$5 million policy has an average cost of more than $7,000 per year.
Architects and engineers tend to have the highest E&O insurance costs, with a $1 million/$1 million policy costing more than $3,000 per year on average. Accountants tend to have the lowest costs, with an average of $1,000 per year. Media companies and insurance agencies have an average cost of more than $1,500 per year, while information technology professionals and business consultants have slightly lower costs at just under $1,500 per year.