Cost of Errors & Omissions (E&O) Insurance

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What is Errors & Omissions Insurance?

Errors & Omissions (E&O) insurance, also referred to as professional liability insurance, protects your business from costly professional mistakes. Many businesses that offer professional services are at risk for claims of negligence, errors, or poor advice that caused financial or reputational loss to a customer.

So just how much will E&O insurance cost your business? There are many factors impacting premiums, but first let’s consider the cost of not having E&O insurance. If a lawsuit is brought against your business, you could be facing hefty legal fees, including the cost of hiring an attorney and any settlements or damages. Even if the mistake wasn’t your fault, defending yourself can be quite expensive. With E&O insurance, you would be covered for legal costs up to a specified limit, meaning you won’t have to fork over a large sum out of pocket.

Why It’s Important to Your Business

You’re at risk for E&O claims if you are a consultant or offer any type of professional services to clients for a fee. That includes a whole range of services, whether you’re offering clients advice on financial investments, designing a marketing strategy, or writing code for an internal software project they have the in the works. Mistakes happen - even to the most well-trained professionals - and an unhappy client could sue. As previously mentioned, even if an error or omission ultimately wasn’t your fault, the cost of fighting a lawsuit in court could be devastating to your business. That’s why it’s so important to have E&O insurance coverage.

Factors that Impact the Cost of E&O Insurance

How much E&O insurance will cost your business depends on a number of factors. A few things your insurer will consider when providing a quote could include:

  • Your revenue
  • The number of employees you have
  • Geographic location
  • Your industry
  • Any actions you take to mitigate risk, like hiring lawyers to draw up your contracts or taking measures to proactively ensure client satisfaction
  • Past history of E&O lawsuits
  • Your hiring practices, including the experience levels of your employees

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Cost Examples

According to Trusted Choice, most small businesses will pay between $1,000 to $3,000 in annual premiums per $1 million worth of E&O coverage. So, while average figures an easy reference, your particular scenario will significantly impact the cost. Now, let’s take a look at some sample E&O insurance policy prices:

  • A management consulting company with 20-49 employees in New York City could pay a premium of about $85,000 annually
  • A marketing research company with 5-9 employees in Miami could pay a premium of about $3,700 annually
  • A human resources consulting company with 10-19 employees in Chicago could pay a premium of about $26,000 annually

As you can see, costs can differ greatly based on geographic location and company size. The above are just estimates, and don’t take into account all the factors that impact the cost of insurance. To find out the true cost of E&O insurance for your business specifically, you should get a quote.