Here's something that catches a lot of professionals off guard: your general liability insurance won't protect you if a client sues because you made a mistake in your work. That's where errors and omissions insurance—usually called E&O insurance—comes in. Think of it as your safety net for the kind of lawsuits that can sink a business overnight.
Whether you're a consultant giving strategic advice, an accountant preparing tax returns, or a web developer building software, E&O insurance protects you when clients claim you made a professional mistake, missed a deadline, or failed to deliver what you promised. And in today's litigious environment, that protection isn't just smart—it's often legally required or contractually mandated before you can even start working.
What Exactly Does E&O Insurance Cover?
E&O insurance—also called professional liability insurance—steps in when a client claims you made an error or omission in your professional services. The policy covers your legal defense costs, court fees, and any settlements or judgments against you. Without it, you'd be paying all of that out of pocket, which could easily run into six or seven figures depending on the case.
Real-world examples help clarify what this looks like. An attorney who misses a filing deadline by just 16 minutes can face a malpractice lawsuit. An accountant who gives inaccurate financial advice that costs a client money can be sued for professional negligence. A software company that fails to deliver a functioning product after spending millions of the client's dollars—like when Hertz sued Accenture in 2019 after $32 million spent on a non-functioning website—faces breach of contract claims. In all these scenarios, E&O insurance provides crucial financial protection.
The coverage typically includes defense costs even if the lawsuit is groundless or fraudulent. That's huge, because legal fees can mount up quickly whether you're ultimately found liable or not. Your policy also covers settlements and judgments up to your coverage limits, which most small businesses set at $1 million per claim with a $1 million annual aggregate—that's the most popular configuration chosen by 63% of customers.
Who Actually Needs E&O Insurance?
If you provide professional services or advice to clients, you probably need E&O insurance. The simplest test: if a client could claim you made a mistake that cost them money, you need this coverage.
For some professions, it's legally required. Attorneys must carry legal malpractice insurance in many states—Oregon, for example, requires $300,000 in coverage through the state bar. Medical professionals need malpractice insurance in most states. Real estate agents and brokers must have E&O coverage in more than a dozen states including Idaho, Kentucky, New Mexico, and Tennessee. Insurance agents face requirements in states like Rhode Island, which mandates minimum limits of $250,000 per claim and $500,000 aggregate. Home inspectors need it in about one in three states.
Even if your state doesn't require it by law, client contracts almost always do. IT professionals, accountants, consultants, architects, engineers, counselors, insurance brokers, translators, educators, and testing facilities routinely face contractual requirements for E&O coverage before starting projects. Government contractors working on federal projects must carry insurance for professional perils according to Federal Acquisition Regulations.
Technology professionals face particular exposure. Breach of contract from failure to meet requirements or deliver promised services is the single most common type of professional liability claim in tech. Security incidents, data breaches, improper network configuration, and bad software recommendations all trigger E&O claims. With digital transformation accelerating across industries, tech E&O disputes are becoming more common and more costly.
What E&O Insurance Actually Costs
The good news: E&O insurance is more affordable than most business owners expect. In 2024, the national median monthly cost was $42 for new customers, with an average of $66 per month. Most small businesses pay between $500 to $1,000 annually, and 55% of small business owners pay less than $600 per year—that's less than $50 monthly for essential protection against potentially devastating lawsuits.
Your actual premium depends on several factors. Your profession matters most—lawyers and accountants typically pay more because their potential for costly mistakes is higher. Insurers analyze how much claims typically cost in your industry, current trends, and specific regulations when setting rates. Your business size, revenue, and number of employees all factor in. Location plays a role too, with state-to-state variations ranging from $67 to $90 monthly on average. Expect to pay around $1,100 annually in states like New York or California, while North Carolina and North Dakota offer more affordable coverage around $800 yearly.
Your claims history significantly impacts pricing. If you've faced previous E&O claims, expect higher premiums. The coverage limits and deductible you choose also affect cost. Most businesses select $1 million per claim and $1 million aggregate limits with a $2,500 deductible—that's the sweet spot balancing protection and affordability. If you need higher limits like $2 million per claim, chosen by 9% of customers, you'll pay proportionally more.
How to Get E&O Coverage and What to Look For
Getting E&O insurance starts with understanding your specific needs. Review your client contracts to see what coverage limits they require. Check your state's professional licensing requirements. Consider your risk exposure based on the type of work you do and the potential financial impact if a client sued you.
When comparing policies, pay attention to coverage limits. The standard $1 million per claim / $1 million aggregate works for many businesses, but higher-risk professions or larger contracts may warrant $2 million or more. Understand what your deductible will be—the average is $2,500, meaning you pay that amount before insurance kicks in.
Read the exclusions carefully. E&O policies typically don't cover intentional wrongdoing, criminal acts, bodily injury, or property damage (that's what general liability insurance handles). They also usually exclude claims arising before your policy start date, so get coverage before you need it.
Work with an insurance agent who understands your profession. Industry-specific expertise matters because E&O coverage can vary significantly between professions. An agent familiar with your field will help you get appropriate coverage without overpaying for protection you don't need.
The bottom line: E&O insurance isn't just about checking a box for legal requirements or client contracts. It's about protecting your business from the kind of financial catastrophe that could wipe out everything you've built. For less than the cost of a nice dinner out each month, you get peace of mind knowing that if a client claims you made a professional mistake, you won't be facing a lawsuit alone. In a world where even minor errors can trigger major legal action, that protection is worth every penny.
