Consultants are in the business of giving advice, from management advice to financial advice to social media marketing advice. Their insurance needs to handle their particular needs, as well as the standard insurance requirements of any small business.
If you offer bad advice to a neighbor looking for a good restaurant, she might question your taste. But if you’re a consultant offering your advice for a living, the consequences can be financially devastating.
That’s why you need E&O coverage, short for errors and omissions, to protect you from suits that allege you provided bad professional advice or decisions.
What Is E&O Coverage?
There is no standard coverage and each insurer offers its own policy. You need to check out the wording of the policies available to make sure they cover your needs adequately.
“Wrongful act” is a critical term for consultants when it comes to insurance coverage. It is defined as “an act, error, omission, misstatement, misleading statement or neglect or breach of duty.” This protects you from charges that you didn’t do your job properly or not well enough.
When choosing policy limits, be aware about what and how much it covers. If the case goes to court, does the policy will pay your lawyer out of the maximum coverage amount? In many policies, if your award limit is $1 million, your attorney fees come out of that money too. This cuts down on the amount available to pay the award.
Like almost all types of liability insurance, E&O pays for situations that occur during the period covered by your policy, called a “Claims Made Basis.” Lawsuits brought while the policy is in force are covered. But you need to be aware that often litigation happens years after the event so if you let your coverage lapse, you no longer have protection.
E&O, like all liability coverage, can get expensive. One good way to control the cost of your monthly premiums is to opt for a high deductible, anywhere from $5,000 to $10,000.
Possible Pitfalls
Make sure you understand what is covered before you decide on a policy. You need to clearly determine what the requirements are in order to make sure the type of work you do is covered. Vague or ambiguous requirements may mean that your insurance will be useless for a lawsuit.
Your best protection is to find a professional insurance agent who specializes in policies for consultants. Bring the specifics or contracts of several of your jobs with you when you when you discuss the policy that you need. This will help him pinpoint what specifically your consulting practice needs covered.
This will also save you money. He can see what functionality you will never use. The policy can be written to eliminate it and save you money.
Other Business Insurance
In addition, consultants need the standard insurance coverage for a business, including:
Disability
Life
Home office
Auto
Worker’s Compensation
Adequate consultant insurance coverage will provide peace of mind and the funds to weather litigation and other perils.
