Real Estate Insurance 101: E&O Insurance
Nowadays, you cannot buy something costly or have your own business without including the inevitable price of insurance. Any real estate agent who has their own company and isn’t paying insurance is putting themselves at a huge risk. Although it may seem that the buyers and sellers are the ones that should be concerned with insurance, the same goes for you, too. While there’s no doubt that insurance is necessary, some beginner real estate agents (or those interested in becoming a real estate agent) may have some questions surrounding the topic, and that’s okay. There’s a first time for everything, and you should never feel afraid about asking something that’s so crucial to your business and your livelihood.
But, just in case you are, we’ll try to introduce you to the basics of real estate insurance as best as we can:
What is E&O Insurance?
If you’re in the biz, then you probably already know that “E&O insurance” stands for “Errors and Omissions insurance.” And, if you’re just starting out, you know that you need it, but perhaps you want to know more about where you should get it and what you should be covered for. This is a professional liability insurance — and an absolute necessity — and is meant to cover you when/if someone tries to file a claim against you. Although most real estate agents have great rapport and relationships with their clients and vendors, and even though most of these transactions tend to go smoothly after all is said and done, there’s always a chance that things actually didn’t go as well as you had thought. Any person can file a claim about you for any reason, but if this happens, it usually is because of “alleged negligence” or “inadequate work.”
Examples of What Can Happen
Not sure of what qualifies as negligence or inadequate work? We don’t blame you. As a real estate agent who cares about his or her client’s needs, it’s clear that you’re already doing everything in your power to make sure you don’t come across any serious issues.
The thing is, sometimes situations can happen without you even realizing it. For instance, what if your computer system has a data breach, and the sensitive data of one of your clients falls into the wrong hands? Or, what if you forgot to lock the door on the way out of an open house (even though you were absolutely sure that you did) and the house got broken into? What if you’re accused of discrimination or what if someone working with you — like a subcontractor — fails to do their job correctly, resulting in a problem for your client? Even simply advertising a listing with the wrong information could get you into trouble.
Nobody wants to have to think about these things. But, that’s precisely why it matters. In the end, you just need to protect yourself as much as you possibly can.
Operational vs. Financial Risks
When it comes to E&O insurance, it’s important to understand the differences between financial risk and operational risks in terms of coverage. An operational risk refers to anything that has to do with maintenance or handling the operations of the property you’re dealing with, as well as cybersecurity and IT issues. This could be anything from issues with construction management and personal injury, to simple professional liability concerns. Financial risks, on the other hand, refers to broker/dealer professional liability, including, but not limited to, unsolicited investment advice to problems with portfolio management, or filing an eviction order incorrectly.
Whether or not some of none of these apply to you, the point is that because of the nature of a real estate agent’s job, there are a lot of other parties involved. And, even though you may not necessarily be responsible for someone else’s mistake, you are associated with them, and any mistakes they make can ultimately fall on you. Therefore, you have to take as much responsibility for yourself as you can, and that’s by getting yourself — and your employees — options to take out E&O insurance.
Who Needs E&O Insurance?
Real estate isn’t the only industry that strongly suggests people to have their E&O insurance. Those who work as a doctor, accountant, engineer, general contractor, architect, or any other industry that works with sensitive information of their clients, will likely need E&O insurance (in addition to other insurances). Shipping companies, printing companies, designers, wedding planners, consultants, etc., if you fall into one of these categories, you’ll likely need to get yourself E&O insurance. In fact, simply failing to have E&O insurance can be a problem, similar to someone driving a car without auto insurance or a doctor seeing a patient without malpractice insurance.
Where Do I Start?
Now that you know more about the details of E&O insurance, it’s time to get yourself on a plan if you aren’t on one already. Or, it’s time to change your plan if your current insurance company is charging too much for too little coverage. Companies like Nationwide, Liberty Mutual, and GBA Insurance offer policies in this niche, but you can also ask around your local real estate community to see what others are using. When looking at options, read carefully the insuring agreement, which explicitly outlines your coverage and what will be taken care of in case someone makes a claim against you. Things that you want to check are:
- Defense coverage — which specific claims are covered.
- Exclusions — claims and situations that are not covered, like a criminal act.
- Limits and retention — up to how much the insurer can cover you for.
Make sure to shop around a bit and compare various plans to see which one is the best rate for you and your company.
What Can I Expect to Pay?
Depending on certain factors, you may be expected to pay more for your E&O insurance. Some things that go into figuring out the cost of your premium are things like:
- Your company’s size
- Where your business is located (state laws)
- What types of contracts you use
- Your history of errors and omissions
- Whether or not you’re proactive on your own (IT compliance)
Of course, the lower the risk your company presents, the lower the premium will be. That being said, you can expect to pay anywhere between $700 a year and $1,000 a year. For instance, the company Insureon charges their clients around $63 per month.
E&O is not the only insurance you’ll want to have as a real estate agent. There are many others depending on the nature of your business and in what fashion you meet with your clients, for instance, commercial property insurance. Even though you’re in the business of helping others, be sure to always help yourself, first.
Do you have any other questions or concerns about E&O insurance? Let us know and we will do our best to find you answers.