We recently covered a topic many of our readers have expressed interest, confusion and curiosity about: the ever mysterious realm of professional liability coverage. You can read the full post — Do Freelancers Need Errors and Omissions Insurance? — but the gist is that it’s an important protection for consultants and solopreneurs that can be pretty affordable, especially relative to the value it adds. So perhaps it’s time for you to buy errors and omissions insurance. How do you find the right policy for you? What do you look for in a carrier?
In this post we’ll dive into the nitty-gritty of E&O shopping and get you feeling comfortable and confident in your options. One size does NOT fit all, so let’s look at some important factors that will help determine your eligibility for an affordable and encompassing policy that is right for you.
Look critically at the trade-off between premiums and deductibles
The fine balance between your premium expense and deductible is a consideration you will have in all forms of insurance, and it certainly applies to anyone looking to buy errors and omissions insurance.
The trade off is simple — the more you pay on the front end, the lower your deductible, or the amount your need to cover out of pocket before your policy kicks in. The idea is no different from your health coverage. We mentioned a general range last time of between $500 and $1500 annually for professional liability plans for solopreneurs.
The difference between about $42 a month and $125 is not negligible, and while your higher amount up front will give you more robust coverage, it may be okay to reach for a more modest plan if you work with smaller clients and have a fairly low risk factor. Let’s look at that below.
Assess your risk factor
There is a bit of a custom dimension to risk assessment in the field of E&O — the better you cover yourself in general, the less risk you pay for in your policy. As a new indie business or an individual freelancer, it can feel like the odds are stacked against you when it comes time to take out any sort of official policy.
This is not necessarily the case though. In fact, having a “clean slate” can actually better your chances of convincing insurers of your low risk factor and get you a plan that realistically accounts for things going wrong without breaking the bank.
In a recent blog, Insureon outlines three important protections you can build into your business processes that will help convey a minimal risk factor to insurers:
- Have a trusted lawyer advise you on your contract writing and review these documents to insure proper protection.
- Hire a consultant to assess your quality control and training procedures. This could be an important difference-maker for solos working with subcontractors.
- Communicate with your clients to manage expectations (and keep these communications well organized for future reference).
If you need to compromise a bit on a less encompassing plan to fit your budget, it is also important to have a really solid client sign-off process in place.
Does the coverage include a “duty to defend” clause?
This isn’t always a must-have item, but it can be very important for solopreneurs who work with the high risk/high reward clients we discussed in our last unit (you know, the companies that tend to have very well staffed legal departments . . . ).
While the “duty to defend” clause does not affect the “dollars and cents” protection your insurance offers, it accounts for the actual management of your legal needs. Tech Insurance outlines these major differences in a helpful article on comparing the benefits of various insurers. A duty to defend clause will hold the carrier accountable for:
- Managing the litigation process.
- Selecting your legal team.
- Paying your defense costs.
Find the insurer that is tailored to your needs
Does the insurer you’re vetting specialize in working with freelancers or small businesses of your size? While errors and omissions insurance is a good thing for almost anyone, not all plans or carriers are.
One of the best pieces of content I’ve encountered on the topic of how to buy errors and omissions insurance is a Q&A explainer written by the National Ethics Association. The blog addresses the the all-important issue of “I pay too much for E&O — how do I reduce the cost?”
I recommend giving this E&O For Less article a quick look (it will take you all of two minutes to read) but the real takeaway points here are to shop around and avoid carriers that do not specialize in working with businesses of your stature — they may even charge a “one size fits all rate” to every client regardless of their differences! This is not what you are looking for.
When we buy errors and omissions insurance, we are looking to create a partnership that will help us at all stages of our professional growth. Do not settle for a carrier that:
- Hasn’t taken the time to really understand your business.
- Insists on charging you for protections you don’t need.
- Will not reward you for the things you do right.
Your business is unique — finding the insurer that understands this is what makes errors and omissions insurance viable.