Errors and omissions insurance – as an insurance agent, you’re going to need to carry it at some point. Most carriers require you to submit proof of coverage before they’ll even bother appointing you. I’ll be honest here: I’ve known people who’ve done some questionable things in the insurance industry, some of whom ultimately lost their licenses, but I’ve never known anyone who has actually had a claim filed against their E&O policy. But don’t let the vanishingly low claim rates lull you into thinking any old policy will do – claims do happen, however infrequently, and if you’re the unlucky soul who gets struck by lightning you’ll be glad you got quality coverage. Let’s look at a few things to be aware of when shopping for E&O coverage.
1. Policy Limits
E&O coverage limits are usually written like “$1M/$1M” to indicate their “per-claim” and “aggregate” policy limits. For example, a $1M/$1M policy would pay a maximum of a million dollars per claim and a maximum of a million dollars over all claims (so a single maxed-out claim would also max out the whole policy; ten individual claims of $100,000 each would do the same). Be aware of the policy limits your carriers require. Most will be fine with $1M/$1M coverage, but some will require policies with a higher aggregate (usually $1M/$2M).
2. Policies vs. Certificates
Some E&O policies are true standalone policies that you purchase for yourself. Other offerings (including the vast majority of what you’ll find when Googling for E&O coverage) are actually certificates of coverage on a group policy. Just like with individual health insurance as opposed to group coverage, buying into an E&O group doesn’t give you a policy – it gives you a certificate of coverage under a master policy. There’s nothing wrong with getting a certificate versus getting an actual policy, it’s just something to be aware of. You should also know that the master policy itself will have a separate aggregate, or maximum liability cap, at which point it’ll stop paying out for the entire group. In practice, I don’t believe such a cap has ever been hit.
You can pay way too much for E&O. Some policies cover things you won’t need, like the sale of stocks and mutual funds. Others might simply have a higher premium compared to similar coverage elsewhere. Shop around for the policy limits you need at the best price you can find. We’ve got a discount on E&O coverage for our members at ILIAA.org – you can find a link to the policy page in the Member Discount area. While most policies require you to pay on an annual basis, you can pick up our discounted policy at a monthly rate. Nice!