Errors, Omissions, Insurance
The Real Estate Professional Guide to E&O Coverage

Part 2: When Do Real Estate Professionals Need E&O Insurance?

Part 2: When Do Real Estate Professionals Need E&O Insurance?

Currently, 12 states require real estate agents to have E&O Insurance in order to be licensed. In these states, you'll need coverage and can either buy it though a state broker or an independent insurance agency (like insureon).

States that Require E&O Insurance for Real Estate Agents

Even if E&O is not required by law, it can offer valuable protections to real estate agents. As we've seen throughout this eBook, agents can be sued for a multitude of reasons. It's smart to have a risk management strategy that accounts for the cost of a lawsuit. Plus, there are some situations where business partners and parent real estate agencies require you to have Errors and Omissions Insurance.

Why would a business partner require you to carry E&O?

  • A client has a problem with a sale. They could sue everyone who was involved, including brokers, agents, and appraisers. Business partners may want you to have your own insurance policy so they know that the costs of legal action won't fall on them.
  • You work as a contractor for a parent agency. Some larger agencies require their contractors to carry insurance for the same reason. If a buyer is frustrated with their home purchase, your parent agency might want you to have your own E&O to pay for a lawsuit so their policy doesn't have to cover as much.

Your E&O requirements will depend a lot on where you work and the specifics of your business. Even if you're not legally or contractually required to have E&O, it can make financial sense to have this coverage.

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E&O coverage requirements vary based on industry, local restrictions, and state laws.

When Should You Sign Up for E&O Insurance?

Investing in real estate E&O Insurance as soon as you start practicing is wise because…

  • It helps build trust with clients and potential business associates.
  • E&O polices are claims-made policies, which means they cover more the longer you have them.

It can be reassuring to clients to know that they're working with a real estate agent who has insurance. Why might clients want to know you're covered?

  • Insured agents are often in a better financial situation.
  • You have a risk management strategy in place, which may pay for potential lawsuits.

These reassurances for clients demonstrate that you're not going anywhere and you take you work seriously.

Additionally, agents should consider signing up for E&O Insurance early because of how a "claims-made" insurance policy works. Incidents and claims that happen before your policy is active or after it is terminated can't be covered. Say you're sued over a house you sold five years ago. If your E&O wasn't active back then, it probably won't cover the lawsuit.

To collect benefits, your Errors and Omissions policy must be active…

  • When the alleged incident occurs.
  • When the claim is filed.

Because real estate agents can be sued years after a sale is completed, it's important to start E&O early and renew your policy each year. That way you'll have years' worth of coverage.

Next: Closing the Deal on Your Risk Management

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Errors, Omissions, Insurance - The Real Estate Professional's Guide to E&O Coverage
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