A Real Estate Agent is a highly popular occupation for those looking for flexible hours, interacting with clients and of course the potential to earn a high income. Of course, it’s also known that being a realtor consists of long hours and hard work and for those who persevere, enjoy a successful business with many benefits to it.
Losing it all in an instant seems unfathomable and yet it happens.
Many articles have been written on the importance of protecting your business by having an insurance policy in place. While we will touch on the subject of why you need a Professional Liability policy, we want to focus on the reason you are reading this article – how much does a Professional Liability policy cost? And what factors affect the cost of your premium.
Without further ado, let’s begin!
How much does Professional Liability insurance cost?
We would love to give you a concrete answer to this question! Unfortunately, the answer to this question is “it depends.” If you google this question, you will get pages of results with all kinds of ranges, from an insurer promising you a policy for $30 a month to those that place their range in a $300 price point.
Frankly, no company can give you an accurate answer to this question without taking down your information and running it through an underwriter to determine your rate. Many factors determine the final premium of your policy. Remember, no two policies are exactly the same. The insurance company takes into account your unique information, policy limits and the combination of different coverages (or lack of some!) to determine your cost.
Factors that determine policy’s cost
We can’t talk about the cost of a policy without discussing the factors that contribute to your final premium.
Carrier’s base rates – Any rate adjustments start with the base rate that the carrier filed with the Insurance Department. A carrier that specializes in your industry or in the type of policy you are seeking will generally have lower base rates.
Business information – Your company’s size, number of transactions a year, a cost of an average transaction are all factors that affect the rate. For example, a Real Estate office consisting of 5 Realtors represents a higher risk of a potential lawsuit than a one-person operation.
Claim history – Previous lawsuits against you will significantly increase your rate as you will be viewed as a high-risk client
Limits and deductibles – These two factors are the only ones that you can change to affect your final premium. As the policy limit increases, so does the premium. An increase in deductible, or the amount of the claim that you promise to pay yourself, means reducing your final premium.
Prevention is better then the cure
When discussing insurance, it’s essential to also touch on the subject of risk management. While an appropriate insurance policy will help you offset the cost of a lawsuit, an effective risk management plan will often help you avoid the lawsuit in the first place.
A risk management plan is effective because not only it identifies the risks your company faces, but also provides solutions as to how to mitigate these risks.
Typically a risk management plan is a document (or a collection of documents) outlining procedures and policies for various situations that everyone in your company Is required to follow.
A risk management plan can be as short or as elaborate as you wish. Here are a few suggestions on what type of risks can be addressed within it –
– Risk: “he said she said” situation
Risk Management Plan’s solution: procedure for documenting all correspondence, whether verbal or written, that pertains to that particular transaction. Verbal conversations are often documented by sending the customer an email summarizing the conversation.
– Risk: Home inspector did a poor job, but because you recommended him the client feels you are responsible.
Risk Management Plan’s solution: A procedure on recommending 2-3 inspectors/appraisers so the homeowner can make the final choice. Also, a procedure for vetting the inspectors/appraisers your company works with.
– Risk: A customer feels that an employee in your company discriminated against him.
Risk Management Plan’s solution: Anti-discrimination policy and enforcing that everyone treats customers, prospects, contractors equally and honestly with clear consequences if they don’t.
As you can see these sample risk management plan solutions can help you avoid a lawsuit by simply creating a procedure around an identified risk. Of course, nothing will guarantee that you will never get sued, but it’s a very good start.
Why you need a Professional Liability policy?
Regardless if your Real Estate business is up and running, and you are gaining momentum or if you have been in business for some time as a successful realtor-you cannot make it far without protecting your business.
In a litigious society, with transactions valued at hundreds of thousands if not millions of dollars a lawsuit could be both likely and devastating.
Just think about it – if a lawsuit is filed against you, it will need to be paid whether by an insurance policy or out of your pocket.
Another benefit of having a dedicated professional policy is all the help and coordinating you get from the insurance company during the claim. Dealing with a lawsuit, especially if it is a first time, can be overwhelming. The carrier will recommend an Attorney who specializes in Real Estate cases; will provide access to experts and will have dedicated claim personnel to answer any questions.
Protection from the dire financial consequences of a potential lawsuit is a major reason to purchase this critical coverage.
So now that we have re-affirmed the necessity for Real Estate Liability insurance let’s take a look at your exposures. Below are hypothetical but completely real scenarios that could happen to anyone. Remember, the lawsuit doesn’t have to have merit to happen. Even if it is frivolous, it still costs a lot of money to fight your case – An attorney still needs to be hired, court fees still need to be paid and so on.
Some examples of potential claims include:
– Failure to disclose a lien on the property to the buyer
– Failure to disclose a known health concern or zoning issue to the buyer
– Failure to disclose a structural flaw in the listing
– Describing property incorrectly in the listing
– Perceived discrimination
– Not working in the best interest of the client, i.e. failing in your fiduciary duty
I already have a General Liability policy. Is it enough?
A term “liability insurance” can be a bit confusing. Even though both General Liability and Professional Liability are liability policies, they serve different purposes and cover different situations. Many refer to a General Liability policy when they say that they have liability coverage, thinking that professional exposures are covered as well. Unfortunately, they learn of their mistake too late – when a lawsuit hits and the claim goes uncovered.
So what is the difference?
A General Liability policy covers general lawsuits like slip and fall claims, advertising injuries and property damage to third parties. A Professional Liability policy strictly covers financial losses to a third party as a result of your professional services. In fact, a General Liability policy excludes any claims pertaining to your professional services.
What are the minimum limits that need to be purchased?
When considering your limits, it’s important to balance the cost against the coverage you need. A knowledgeable broker can help you strike that balance between purchasing too much insurance thus making your policy too expensive and underinsuring your company but keeping the cost to a minimum. Neither of these scenarios are ideal.
A rule of thumb is to think about the average cost of each transaction and the average amount of transactions you make in a year. This will determine how much coverage you need.
As you can see a Professional Liability policy is a crucial policy for Real Estate Agents. With so much money on the line, a lawsuit over a large transaction can bring down a smaller company and severely cripple a bigger organization.
Even though there is no clear-cut answer on how much a Professional Liability policy costs without going through an underwriting process, the opposite question can be answered definitively. What would it cost you not to have insurance in place when a lawsuit happens? How much do you stand to lose?
Remember, if you are not incorporated, your personal assets can be at risk. So not only is your business exposed but your family’s home, vehicles, and other assets are as well.
Bizinsure can help you ensure the safety of both your personal and business assets by providing instant quotes for a Professional Liability policy. Click here to complete a short online form to receive your quotes instantly.