Not all real estate Errors & Omissions (E&O) insurance policies for real estate companies, brokers, and licensees are created equal. The differences between policies and what different insurers include can be vast, which can have a significant impact on the level of protection you’re getting for your real estate business.
When looking at an E&O policy, it is important to carefully compare policies and what they deliver. From the scope of coverage to deductibles, and everything in between, failure to know what you are and aren’t insured for can be risky — especially if you find yourself facing a lawsuit.
Here are the main differences across E&O policies, and what to watch out for when comparing insurers, so you’ll have adequate protection for your real estate business.
What to Look Out For When Comparing Policies
Are All of Your Activities Covered
Policies may be worded differently. Be sure to read the scope of your coverage and ensure you are covered for the services you provide, whether that’s residential or commercial property management, transaction coordination, escrow services, appraisal, mortgage brokering, or real estate sales.
Are Your Past Activities Covered
If, as a licensee, you are switching E&O insurers, you want to ensure you have coverage for all of your past-covered activities (or “prior acts.”). That includes every service you provided in the past in your real estate business from the time you first had continuous E&O insurance.
For example, if you were once a property manager, but now you’re only working in sales, you’ll still want to be sure that your past property management activities are covered by your new insurer. That means that any new Errors and Omissions policy you have for the rest of your career must have property management coverage to ensure continuous coverage for those activities. (If you’re covered by your real estate company’s policy, be sure to ask what activities it covers.)
Any gaps in your E&O coverage, where your coverage wasn’t continuous, makes you vulnerable to a potential lawsuit. So be sure to check your ‘retroactive date’. This is the date from which your policy will cover claims.
Policy Limits
Check the maximum amount your insurance policy will cover. Limits (or the amount your policy will pay) will vary across policies, type of activities covered, and the individual covered item or “endorsement.”.
Usually, overall policy limits are shown like this:
$100,000/$500,000
The first number represents your maximum limit per claim. So, for this example, you would have a $100,000 limit per claim. The second number is your aggregate limit or the maximum amount of coverage across all claims within the policy period. In the example above, $500,000 is the maximum limit for the year across all claims.
Less coverage and lower limits may mean a policy is cheaper, but that isn’t always true. (In many cases, CRES E&O gives you far more coverage but for a lower price!) Be sure to compare policies and understand how much coverage, for what activities, and in which areas, each gives you. Also, keep in mind that even small claims can be costly to defend. Paying a little more for insurance could give you hundreds of thousands of dollars more in coverage.
Deductible or Retention
A deductible or retention is the amount of money you, as the insured, need to pay when you have a claim. With a deductible as the name suggests, the amount is deducted from the final amount the insurer has to pay (and you would cover the rest)
With a retention, that is the amount of out-of-pocket costs you will pay before your insurance begins paying. The amount of the deductible or retention will vary and you should consider this when deciding about your E&O insurance policy.
Individual Coverage Areas Specific to Real Estate
You want a policy tailored specifically for real estate risks, that will include coverage for your everyday activities. That means you should see coverage (or available options) for Lockbox Property Damage, Open House and Showings coverage, Environmental/Pollution/Mold, and other areas common in real estate.
Each of these coverage areas, called endorsements, typically have a dollar limit. These dollar limits in these individual coverage areas are the real difference between real estate errors and omissions policies. Be sure to compare these limits between policies. (Most real estate professionals find they can obtain many times more protection with CRES — in each of these individual coverage areas — than the competition.)
Other Things to Look Out For
Assess the Financial Stability and Longevity of Insurance Providers
When comparing policies, it pays to go with someone with a strong reputation who is on solid financial ground and has served the real estate community successfully for a long time.
Look for a company you can be confident can defend you if a claim arises. After all your premiums are paid, imagine realizing your insurer cannot protect you — or worse — if they have gone out of business, and you are vulnerable to potentially devastating lawsuits with no recourse. (CRES has specialized in serving real estate professionals and real estate companies for more than 25 years, and we’re part of one of the largest insurance brokers in the world.)
Seek a Specialized Real Estate E&O Insurer
An insurer who specializes in real estate understands the industry, regulations, and the risks you face in your real estate business every day. They can provide protection that is more comprehensive for a real estate licensee than a general insurance company. A real estate insurance specialist will also have well-established relationships with experienced real estate attorneys who can help you defend claims whenever the need arises.
Avoid a generic E&O solution that is used for many industries. Real estate risks are very specific, and you want a policy that covers lockbox damages, Open House and Showings, Pollution/Mold, Agent-Owned property and other areas specific to real estate. (And when you need help, you want expert real estate attorneys who defend claims exactly like yours every day.)
Consider the Size of Insurance Broker, If You’re Working with One
Smaller insurance brokers usually don’t have access to the types of policies available to larger brokers. (For example, CRES, as part of one of the largest insurance brokers in the world, has access to more E&O options than just about anyone.) You might want to get a real estate E&O quote from CRES to see how much more coverage you could be receiving.
Start Protecting Yourself and Your Real Estate Business Now
Let us find you the best coverage and value your money can buy. CRES real estate E&O + ClaimPrevent® can even offer you access to qualified attorneys pre-claim, so you can get expert legal advice whenever you need it. (Considering the cost of talking with an attorney, getting that time with your E&O could be the best value you’ll find!) Contact the CRES team at 800-880-2747 for a confidential discussion today.
