Becoming a realtor is a popular career of choice for many. The potential for a high income as well as an opportunity to work closely with people is enticing. However, working with many clients and with big money can lead to lawsuits.
As we all know, lawsuits are expensive. They drain you of money, resources and time that could be better spent earning income. The cost of a lawsuit can be financially devastating. It’s not uncommon for folks to be losing their homes and other personal assets to fight a lawsuit. So what do you do? After all, nobody is immune to being sued especially in a field such as real estate.
An insurance policy will not guarantee that you will avoid getting sued. Instead, it will offer financial protection if a lawsuit is brought in against you.
In this article, we want to discuss Professional Liability coverage for Real Estate Agents. What is it? Do you really need it?
We will also point out key coverage and policy elements to keep in mind when reviewing your insurance proposal.
Let’s get to it!
What does a Professional Liability insurance cover?
A Professional Liability policy (sometimes called an errors & omissions policy) is designed to cover lawsuits alleging errors or omissions made in your professional capacity. Unlike a General Liability policy that only covers claims such as slip and fall or accidental damage, a Professional Liability policy helps you get back on your feet if a lawsuit has been brought against you because of the service that you have provided. Even if you didn’t make a mistake, an unhappy customer could still attempt to sue you. They may lose the lawsuit, but you will still need to hire an attorney, pay court fees, and fight the claim.
So what does the policy cover?
Below are the general coverages for this type of policy. These are covered regardless if you win or lose the case.
– The cost of the attorney
– Court costs
– Administrative costs
– The cost to investigate the case
– Judgments awarded against you
Do Real Estate Agents need a Professional Liability policy?
Short answer? Absolutely!
Let us explain.
As a Real Estate Agent, you work with many customers who spend large sums of money during each transaction. They depend on you for your professional advice. If a customer loses a deal or has bought a “lemon” property because of your expert advice you can, and most likely will, get sued. Whether your mistake is real or perceived, it may take a lot of money to clear your name.
Exposures and possible claim scenarios
So what are your exposures as a Real Estate Agent?
The most common lawsuits that a Real Estate Agent typically faces are a breach of duty and negligence suits. In a breach of duty lawsuit, a client alleges that you have not acted in his or her best interests. A negligence suit typically involves alleged failure to disclose information pertinent to the transaction.
Breach of duty example: A realtor not presenting you, the client, all the offers omitting the highest one. It turns out that he represents both you, the seller, and a buyer that wrote a second highest offer. By not presenting you with all offers, he failed to act in your best interests.
Negligence suit example: Buyer’s agent fails to communicate to the listing agent that the buyers have decided to not purchase the house and need to be released from contract due to contingency agreement. As such, the buyers are locked into the purchase and lose their deposit.
Key policy elements to be aware of
When purchasing a Professional Liability insurance coverage, it’s beneficial to enlist the help of an experienced insurance expert. They will be able to help you compare multiple quotes and answer any questions you might have. Before you make your first payment, make sure you know a few critical things about your policy. These are not all apparent, especially if you are new to purchasing this kind of insurance. Not asking these questions, may lead to an underinsured or an uncovered claim.
Claims made or occurrence coverage?
Most Professional Liability policies are written on a claims-made basis. For the claim to be covered, two conditions must be met:
– the loss happened after the policy’s retroactive date and
– the loss was reported to the insurance company during the policy period
With an occurrence-based policy, it doesn’t matter if the policy was in effect when the loss was reported. All that matters is that when a claim happens, the policy is active.
So why is this important?
Because a claims-made policy requires you to have an active policy when you submit your claim to the company, it is imperative to avoid cancelling your policy. Often insurance policies get cancelled in error – a missed payment, not providing some required information to the insurance company and so on. Pay attention to all the communications from your insurance company, and if you can not provide something in designated time, make arrangements through your broker or directly with the carrier.
Know your limits
Policy limits reflect the maximum dollar amount that the insurance company agrees to cover you for. There are three types of limits:
– Occurrence – the maximum the insurance policy will pay for any one claim
– Aggregate – the maximum the insurance policy will pay for all claims combined
– Sublimit – certain coverages can be assigned their own separate limit. For example, let’s assume that your policy’s per occurrence limit is $1,000,000. If your business income coverage is sublimated at $100,000, then this is the maximum you are going to get for this coverage even though your primary limit is higher.
Know your deductible
A concept of a deductible is the same across all types of insurance policies. Just like in auto or home insurance, a deductible is the amount of the claim you agree to pay.
How does this insurer handle a claim? What are the things that I need to do as soon as I find out about a possible claim? Will the insurer provide a lawyer or I will need to find my own?
All these are important questions to ask your agent or broker. A claim tends to bring chaos and uncertainty with it. Be prepared to handle it like a pro!
As mentioned earlier, a cancelled policy can spell a disaster if you have a claim. If you miss a payment, contact your insurance company as soon as you can.
What Professional Liability insurance policy doesn’t cover?
A Professional Liability insurance policy provides extensive cover and protection for your small business. However, there are a few types of coverages that it does not provide. Some situations are not covered because there is a specialized policy to insure them and some are just not an insurable risk.
– Illegal actions – This exclusion is a pretty self-explanatory one. Insurance is designed to cover your risks, sure, however not your risks stemming from illegal activity. No insurance policy will cover those.
– Intentional wrongdoing – Another fairly obvious limitation to any insurance policy. You can not intentionally damage your car for example and collect the cost from your car insurance policy.
– Employee injuries – If your employee gets hurt on the job, a Professional Liability policy will not cover him. Instead, a workers compensation policy might.
– Property damage – A Professional Liability policy is in place to cover any damage a third party incurs due to following your professional advice. Any property damage to anything of yours, such as your office building or its contents is not covered. Instead, a property policy will be an appropriate coverage for this risk
How much does a Real Estate Professional Liability insurance cost?
As with most insurance products, Real Estate Professional Liability policy varies in cost depending on many factors. Factors such as business size, location, transaction types, claim history and so on determine the final rate you will be given.
On average, an annual Professional Liability policy will cost you an average between $500 – $1,000 a year. Of course, if your company has many employees, for example, the cost will be higher.
A Professional Liability insurance policy is a necessary purchase for anybody that doles out professional advice. As a Real Estate Agent, not only do you provide professional advice to your clients, but your advice leads to large transactions. If sued and asked to compensate a client for thousands in lost funds, as well as the cost of defending the lawsuit – could your small business afford this financial situation?
It’s easy to think “I’ll never get sued, it won’t happen to me.” However, even one lawsuit can cause devastating financial ruin. Nobody wants to pay an extra monthly bill, but if a lawsuit hits, that annual premium that you paid will save you thousands if not hundreds of thousands of dollars.
Professional Liability insurance was created to help you get back on your feet if you are sued. Whether the lawsuit costs $20,000 or $250,000 to defend and settle – you are protected by your insurance coverage.
BizInsure can provide you with instant quotes from leading professional liability insurance carriers.