Should I have errors and omissions (E&O) insurance?

Commercial general liability insurance typically covers bodily injury and property damage. E&O insurance differs in that it covers claims of negligence or harm that results in financial losses or other damages.

Whether you're at fault or not, lawsuits can be both time-consuming and pricey. To determine whether you need this coverage, look at your industry, clients, contracts and the potential for harm. Because the potential for harm (and lawsuits) is greater for certain professions, like legal and medical, errors and omissions insurance is required by law in some states or may be workplace policy.

For other businesses, however, the decision is up to owners and their views of the potential risks versus the cost of obtaining errors and omissions insurance. Decide about E&O insurance after looking into the following points:

Contractual Requirements -- Is it common in your industry to supply proof of insurance to clients in order to secure contracts? This is common practice in industries where actions could result in significant financial losses.

Cost Feasibility -- Does the benefit of having coverage outweigh the cost of the insurance? In some cases, if the work you do places you at low risk, the cost of the insurance may be more than you would earn from the contract.

Potential for Claims -- What's the likelihood that your professional services can cause harm or that clients could perceive that they have been harmed? For example, a mistake made by a doctor, lawyer or architect could have significant financial implications, making it prudent for professionals in particular industries to protect themselves with E&O insurance.