Despite all the obvious upsides to owning your own business, there are also some significant risks as well. Hiccups are often part of the process. Even if you’re careful to ensure that the client is fully aware of the details of the service and result that you’re offering them and you deliver exactly as promised, you may still be sued for negligence.
That’s why error and omissions insurance is so important to have. It’s a kind of professional liability insurance specifically for those providing professional services or advice. In this guide, we’ll discuss the average cost of E&O insurance.
How Much Does E&O Insurance Cost?
Of course, we must begin with the obvious disclaimer that we can’t tell you exactly what you’ll pay, however, we can go over some average trends in error and omissions insurance prices. For small businesses with 10 employees or fewer, the average E&O insurance cost is $1,735.
That number can be deceptive though since unusually high or low rates can skew the data. Looking at the median in cases like this can often be more representative and accurate. Irrespective of the limit of the policy, the median E&O policy is around $59 per month, or an annual cost of $713. More than half of small business owners pay somewhere between $500 and $1,000 a year.
Jack Choros from Sophisticated Investor, concurs that Errors and omissions insurance can cost anywhere from $400-$1,500 per year or more. He adds that a technology company in America can expect to pay more than $700 per year for errors and omissions insurance.
Companies in the health space should expect much higher than average world errors and omissions insurance. Jack Choros says $7,500 per year could be a normal figure in the medical space. For those in legal malpractice, insurance can be between $1,500 in $2,500 per year.
As mentioned, the price really depends on how much work is involved and how likely it is that an act of negligence would cost your business money or compromise your health, legal standing or the integrity of your business.
Cost of E&O Insurance by Industry
The industry you’re in can have a huge impact on the price of your error and omissions insurance. If your industry puts you at low risk of litigation than you’ll likely pay less while industries with more lawsuits and higher settlement amounts will have to pay more. To give you an idea of E&O insurance costs based on the level of industry risk, here are a few examples of the median cost of E&O insurance by industry:
|Industry||Average Yearly Cost of E&O Insurance||Average Monthly Cost of E&O Insurance|
|Media & Advertising||$845||$70|
|Finance & Accounting||$400||$33|
What Influences the Cost of E&O Insurance?
Industry risk isn’t the only factor that can affect the price of your error and omissions insurance. The limit on the policy will also make a difference. For most small businesses, a $1 million policy is ideal. The state, size, and revenue of the company can also play a significant part in cost.
Your E&O claims record will greatly affect the price too. If you have had several E&O claims filed against you then you’re likely to pay a higher premium while going several years without a claim can cause the insurance company to bring down the cost considerably. Employee training and contracts in place can have an effect also. To keep the cost down, choose a yearly billing cycle which is often discounted, and get continuous coverage rather than on a per-project basis.
Do I Need E&O Insurance?
These days it sometimes seems like everyone is out to make a quick buck, even if they have to sue someone to get it. Some settlement amounts also seem pretty outrageous! If you provide a service or give professional advice, then you should have error and omissions insurance. If you look up E&O claims settlements for your industry and it would eat your whole profit margin for the year or you think something like, “I could never afford to pay that” then it’s especially important that you have E&O coverage. You can’t just count on not being sued or you could lose everything in court.
E&O Insurance vs. D&O Insurance vs. EPLI Insurance
Business insurance can seem complicated at times, especially with all these acronyms to remember. Here’s the simple breakdown of these types of insurance, the difference between them, and who needs them.
- Error and Omissions Insurance (E&O): This covers service-based businesses for negligence and inadequate work. All service and advice businesses should have it.
- Directors and Officers Insurance (D&O): This protects a business’ directors and officers from losing personal assets due to a lawsuit. Any company with a board or advisory committee should have D&O coverage.
- Employment Practices Liability Insurance (EPLI coverage.
Despite your best efforts, you can’t know for sure that you won’t be sued for negligence or related issues. Not all claims are valid, but court costs can still be expensive regardless. Protect yourself and your business by getting an E&O insurance policy.