E&O Insurance Cost: What Can I Expect to Pay?

Errors and Omissions (E&O) insurance is an affordable way to protect your business from lawsuits and other claims that may arise from professional mistakes or negligence. This guide will answer all of your questions about E&O insurance costs, what it covers, why you need it, and how much coverage you should consider.

How Much Does Errors and Omissions (E&O) Insurance Cost?

The cost of E&O insurance can vary significantly based on several factors. On average, small businesses can expect to pay between $500 to $1,000 per year for coverage. However, the actual cost depends on the following:

Industry/Profession: Certain industries, such as legal and medical professions, face higher risks and therefore have higher premiums. High-risk professions like doctors and lawyers generally fall into a higher cost bracket.
Professional Services: The nature of the services you provide impacts the cost. If your services are likely to result in injury to people or property, your premiums will be higher.
Location: Premiums can vary based on state regulations and the local legal environment. Businesses in highly-populated areas may face higher insurance costs.
Business Size: Larger businesses with more employees typically pay more. E&O coverage is often calculated on a per-employee basis.
Years in Business: Established businesses with a good reputation and few claims may benefit from lower rates.
Claims History: Businesses with a history of claims may face higher premiums. A clean claims record often results in better quotes.
Coverage Limits: Higher coverage limits will increase the premium. Common limits range from $1 million to $5 million.
Deductible Amount: Higher deductibles can lower the premium but increase out-of-pocket costs in the event of a claim.
Insurance Company: Costs will vary between different insurance providers, so it's important to get multiple quotes.

For instance, a freelance graphic designer might pay around $400 annually, whereas a mid-sized consulting firm could pay upwards of $2,000 per year.

Most small businesses pay between $500–$1,000 per employee per year for errors and omissions insurance, landing the average around $750 a year. Other companies claim that the average is closer to $1,735 a year or between $900–$2,000 for errors and omissions policies.

A smaller percentage of businesses pay above or below that amount. These prices are typically for policy limits of $1 million per claim/$1 million aggregate during the lifetime of the E&O policy.

Policy Limits Impact the Cost of Errors and Omissions Insurance

The cost of an errors and omissions insurance policy increases as you choose higher limits:

The average premium for a $500,000 aggregate limit is around $650 annually.
The average cost of a $500,000 per occurrence limit/$1 million aggregate policy is around $750 per year.

You can expect to pay around $930 a year for a $2 million policy.

The amount of coverage necessary for professional liability policies is determined based on your specific business. Real estate agents will likely need more coverage than an artist. We always recommend that you speak with an insurance agent to determine the coverage limits you need and what you might pay for an errors and omissions insurance policy.

What Does E&O Insurance Cover?

E&O insurance—also referred to as professional liability insurance and medical malpractice insurance—comes into play if you make errors or engage in professional negligence. Here’s a breakdown of what it typically covers:

Professional Negligence: Claims arising from errors, omissions, or negligent acts in the performance of professional services.
Missed Deadlines: Protection if you fail to meet deadlines, resulting in client losses.
Undelivered Services: Coverage for services that were promised but not delivered.
Inaccurate Professional Advice: Protection against claims resulting from giving wrong or misleading advice.
Legal Defense Costs: Covers the cost of hiring a lawyer and other legal fees, even if the claim is groundless.
Settlements and Judgments: Pays for settlements or court-ordered judgments if the insured is found liable.
Libel and Slander: Covers claims related to defamatory statements made by the insured.
Misrepresentation: Protects against claims of misleading or false statements made during the provision of services.
Breach of Contract: Provides coverage for claims of failure to fulfill contractual obligations.

Why Do I Need E&O Insurance?

E&O insurance is crucial for any business providing professional services or advice. Here’s why:

Legal Requirement: Some professions and states require E&O insurance. For example, real estate agents and insurance brokers often need it to be licensed.
Client Contracts: Many clients require businesses to carry E&O insurance as part of their contractual agreements.
Risk Management: Even the most diligent professionals can make mistakes. E&O insurance provides financial protection against costly lawsuits.
Reputation Protection: Handling claims swiftly and professionally with E&O insurance can help maintain your business's reputation.
Peace of Mind: Knowing you have coverage in place allows you to focus on your work without fear of potential legal repercussions.

Without E&O insurance, a single lawsuit could financially devastate your business. For instance, a consultant who makes an error in a financial report could face a claim for significant financial losses incurred by the client.

How Much E&O Insurance Do I Need?

Determining the right amount of E&O insurance depends on various factors, including the nature of your business, the size of your company, and the risks associated with your industry. Here are some guidelines to consider:

Assess Your Risks: Evaluate the potential risks and liabilities specific to your business. Higher-risk industries may need higher coverage limits.
Client Requirements: Consider the insurance requirements set by your clients. Many larger clients may require minimum coverage limits.
Business Size and Revenue: Larger businesses with more significant revenue streams should opt for higher coverage to protect against more substantial claims.
Historical Claims: Look at past claims in your industry to gauge the typical size of settlements and judgments. This can help you choose appropriate coverage limits.
Consult with an Insurance Agent: An experienced insurance agent can provide personalized recommendations based on your business’s unique needs.

Common coverage limits for small to mid-sized businesses range from $1 million to $5 million. However, high-risk professions might need coverage limits of $10 million or more.

How You Can Save on Errors and Omissions Insurance Costs

Small business owners can do a few things to decrease the cost of their business insurance package:

Pay Your Annual Premium Upfront: If you’re able to pay an entire year's premium immediately, it can be a great way to save money. An insurance company will often give you a discount if you're able to do so.
Choose Annual Coverage: Even though many insurance companies offer per-event policies, it’s more cost-effective to choose an annual policy.
Increase Your Deductible: Can you afford to pay a higher deductible per occurrence? If so, it can reduce your insurance premium.
Choose Between a Per-Occurrence or Claims-Made Policy: Claims-made policies only cover claims that happen while a policy is active. Per-occurrence claims can be made at any time, which makes this coverage more expensive.

Let us help you protect your business with E&O insurance and keep your mind at ease. At Tivly, our goal is to help you find protection for your business as efficiently as possibly by matching you with the right insurance provider. Simply give us a call at 877-907-5267 or complete the form above and one of our specialists will contact you right away.