As a financial advisor or insurance agent, your role is crucial in providing personalized advice and access to financial and insurance solutions such as term life insurance, disability insurance, annuities, and mutual funds.
However, even a minor mistake or oversight in your recommendations can lead to significant legal challenges and damage client trust.
Errors and omissions (E&O) insurance can help protect you from the financial burden of defending yourself and paying court judgments or settlements, helping to mitigate this risk. This coverage can provide peace of mind in today’s increasingly litigious environment that you are prepared should legal battles arise.
Here are eight essential things every agent and advisor should know about E&O insurance:
1. Why E&O insurance is important
E&O insurance is designed to provide financial assistance when claims of negligence, misrepresentation, or mistakes are brought against you.
For financial advisors and insurance agents who handle sensitive financial information and provide guidance that clients depend on, even a small error can have considerable monetary consequences.
Without E&O insurance, you may be personally responsible for all legal costs, settlements, and any damages awarded, which can add up quickly.
2. What coverages are excluded
E&O policies typically exclude coverage for intentional misconduct and illegal activities, such as fraud. It’s important to note that claims related to bodily injury, property damage, or cyber incidents also generally fall outside of this coverage.
Always refer to your full policy details for a complete list of exclusions.
3. What are other names for E&O
Depending on industry, provider, and region, E&O may also be referred to as “professional liability,” “professional indemnity”, or “malpractice” insurance.
In most cases, they provide the same protections: coverage for negligence claims, mistakes, oversights, or failure to deliver promised services that cause financial harm to a client.
4. What are common types of claims
Common E&O claims for agents and advisors include providing incorrect advice, failing to recommend appropriate coverage or investments, committing administrative errors, and misrepresenting policy terms or financial products.
5. How to minimize the chance of a claim
You can take proactive steps to reduce the risk of a claim, such as:
- Documenting all client communications
- Providing clear advice
- Ensuring clients fully understand the risks associated with the products and solutions you recommend
- Regularly reviewing contracts
- Staying current with industry regulations and pursuing ongoing professional education
6. What an E&O claim could cost without insurance
The financial impact of an E&O claim should not be underestimated. Costs can range from tens of thousands to over a hundred thousand dollars, depending on the complexity of the case.
Legal fees, settlements, and judgments accumulate quickly, making E&O insurance essential for covering these potential expenses.
7. What to do during a claim
If you have coverage through Marsh’s E&O program, complete the claim report in your handbook and submit it promptly upon becoming aware of a claim or potential claim.
Otherwise, review your policy documents or consult your insurer for instructions on filing a claim.
8. When your policy renews
If you have coverage through Marsh’s E&O program, your policy will renew around the same time each year. This date may not always coincide with the month you originally purchased the coverage. For example, if you first purchased coverage in January, your policy might renew in July, meaning your initial policy term was only six months.
Ensure that you always renew your policy on time to avoid gaps that could expose you to liability. If you’re enrolled in Marsh’s E&O program with quarterly payments, remember that your credit card will be charged approximately 45 days before your next installment payment.
Conclusion
In a profession built on trust and expertise, even small oversights can have significant consequences. E&O insurance provides a critical safety net, enabling you to serve your clients confidently and protect your business in the long term.
Work with an experienced insurance professional who understands the unique needs of financial advisors and insurance agents. If you are covered through Marsh, our team is available via email at eandoservices@marsh.com to answer your questions and help you understand your policy.
By understanding the key aspects of this coverage, you can better manage your professional risk and focus on helping clients plan for and achieve their financial goals.
