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    General Liability vs Errors and Omissions Insurance

    What's the difference between general liability and. errors and omissions insurance (E&O) policies? While both liability insurance plans protect business owners from third-party claims, they have vastly different coverage limitations. Understanding the nuances will help you identify the ideal insurance options for your business.

    The exact conditions vary from policy to policy, but in most cases, general liability insurance covers a broad range of risks involving bodily injuries, lawsuits, property damage, and advertising damages. Meanwhile, E&O insurance only covers lawsuits stemming from professional mistakes. It can help you handle disgruntled clients that claim your business caused them a significant financial loss.

    What Is the Difference Between Errors and Omissions and General Liability?

    General liability insurance covers third-party claims involving personal and bodily damages stemming from your services, products, and operations. For example, if a customer slips and falls while walking inside your establishment, general liability may cover their medical expenses.

    Note: Extensive policies also protect you against advertising injuries related to copyright infringement, slander, libel, and invasion of privacy.

    Meanwhile, errors and omissions insurance (E&O) classifies under professional liability insurance. It covers the fees and losses stemming from the services or advice that your business provides. In most cases, E&O insurance takes effect during sizeable financial losses.

    What Does Errors and Omissions Insurance Cover?

    Errors and omissions insurance covers third-party claims on financial losses stemming from errors, negligence, or commissions during business operations.

    For instance, let's say you run a cybersecurity SaaS company. If a data breach occurs and compromises the third-party files in your database, the affected clients can sue your company for negligence. Considering that lost data costs around $150, a breached system containing 10,000 files would already set your company back by $1.5 million. Fortunately, a robust E&O policy can help cover at least part of the sum needed—depending on your coverage limits.

    Does Your Business Need Both E&O and General Liability Coverage?

    E&O insurance is typical among businesses that provide professional advice or services—especially if human errors could result in financial losses. Professionals who would benefit from this policy include insurance agents, realtors, financial advisors, and stockbrokers. Public companies with several investors should also invest in E&O insurance.

    Businesses can consider getting general liability insurance as well if third-party guests like clients, investors, or delivery personnel regularly enter your business premises. However, a small business owner limited to a tight budget can start with just E&O insurance.

    What Are Common E&O Claims?

    Adding E&O insurance to your business owners' policy ensures that you have protection against claims standard liability policies do not cover, such as:

    • Breach of contracts
    • Miscommunication
    • Software failure
    • Malicious misrepresentation

    How Do You Choose an Errors and Omissions Policy? 

    No two businesses have the exact liability insurance coverage needs, so never opt for cookie-cutter policies. Generic plans yield negligible benefits. In the worst case, you might end up with a business insurance policy that does not even address the industry risks you face as a professional.

    To ensure that your policy matches your service-based business, consider the following factors:

    Coverage Terms and Specifications

    As we mentioned above, one-size-fits-all E&O and general liability insurance plans do not exist. Your business will only benefit from policies tailored to address the most common risks and errors you face in your profession.

    For instance, financial advisors and real estate agents who provide investment advice know that investment strategies never guarantee results. Although investors must always proceed cautiously, they can still sue for negligence if professional advice causes them to lose a sizeable investment.

    You can use an E& O professional liability insurance policy to pay for the fees involved with the legal proceedings. However, your protection will heavily vary based on your coverage terms. Even if your policy has a million-dollar limit, you can only use it to cover claims specified in the initial agreement between you and your insurer.

    Insurer's Financial Ratings

    Local, no-name insurance providers might have the leeway to minimize premiums, but they still lack financial ratings. These scores function as clear-cut metrics to gauge the strength and reputability of prospective insurance companies. Review their rankings and peruse all publicly available documents. If possible, get first-hand reviews from policy owners who have experienced filing liability claims before.

    Also, even if long-standing, reputable insurers charge higher premiums, their industry experience guarantees they have the funding to support claims. The worst that could happen is to end up with a cheap, unknown insurance company notorious for shutting down during crises.

    Claim Limits

    Adjusting coverage limits based solely on your budget puts you at risk of underinsurance. While deciding on a premium threshold prevents unplanned costs, do not go below the minimum recommended coverage. Professionals with insufficient insurance would have to pay exceeding liability claims out of pocket.

    To ensure that your business has enough coverage, assess your financial risks accurately and objectively. As a general rule, adjust your limit according to your service fees.

    For instance, newbie advisors that help individual freelancers manage a few hundred dollars worth of taxes can keep their limits to a minimum. On the contrary, professionals providing high-ticket services should boost their limits. Ideally, your policy limit should cover the average amount that a client might potentially lose during a failed transaction.

    Assured Standard emphasizes that small businesses face the same cyber risks that large enterprises do. Neglecting the necessary insurance plans could spell the end for your business. Check out our quick article on how various companies handled cyber attacks.

    Frequently Asked Questions

    Does E&O cover negligence?

    E&O insurance protects companies and professionals against claims of inadequate work or negligent actions made by clients. Anyone who provides a service requires E&O insurance, such as financial services, doctors, lawyers, and realtors.

    How much is E&O insurance?

    The typical cost for E&O insurance is about $500-$1,000 per employee. If you have 50 employees then the annual premium will be between $25,000 to $50, 000 per year.

    Is errors and omission the same as professional liability?

    Errors and omissions insurance is necessary for companies who are sued over work mistakes. This policy can also be called professional liability or malpractice coverage depending on the industry.

    What does a professional liability policy cover?

    Professional liability insurance is a type of business insurance that provides coverage for professionals and businesses to protect against claims of negligence from clients or customers. It covers a variety of different types, including bodily injury, copyright infringement, personal injury, and more.

    What does a general liability policy cover?

    General liability insurance policies typically cover you and your company for claims involving bodily injuries or property damage resulting from the products, services or operations. It may also help protect you if held liable for damages to a landlord's property.

    Combining general and personal liability insurance yields several advantages, and SMBs with limited budget plans shouldn't carelessly open multiple policies. Some startups might not even have enough funds for general liability insurance premiums—much less extra E&O insurance. Securing sufficient coverage is beneficial, but not at the expense of profits.

    Instead of spending thousands of dollars on a costly general liability plan right from the get-go, opt for a practical, affordable professional liability insurance policy. Adjust your coverage terms to address the most significant industry risks you face. Opt to increase your policy limits gradually as you expand your business and start taking on new clients.

    Are you struggling to manage the risks that you face in your profession? Assured Standard can help! Check out our quick guide on how you can use professional liability insurance to minimize certain industry risks.

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    Assured Standard will protect your business with the right insurance, depending on your needs. Now more than ever, it’s crucial to have the right general liability insurance experts on your side. Protecting the future of your business starts today.
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