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Professional Liability Insurance (E&O) for Consultants, Investment Advisors, and Other Financial Professionals

Business consultant can mean many different things. A consultant offers services or solutions to a business that is seeking specialty advice. They are usually experts in the field they work in. Some of the many professions that may work as consultants include:

  • Financial advisors
  • Investment advisors
  • Tax preparers
  • Accountants
  • IT consultants

There’s quite a bit of overlap in the first four categories. They can also go by names such as financial planners, wealth advisors and investment managers. These types of professionals provide advice to businesses regarding money: where to invest to grow it, how to manage it, how to track it, and how much taxes to pay on it. 

An IT (information technology) consultant advises clients on how to use technology to meet their business goals. They also help solve problems with computers and computer systems. 

Who needs Professional Liability Insurance?

If you work as an independent contractor in any of these fields, you’re going to need professional liability insurance or E&O insurance. The IRS defines an independent contractor (as opposed to an employee) as a self-employed person. The payer has the right to control or direct the result of work, but not when or how it’s done. 

Any profession that deals with people’s money assumes risk. Clients understandably have very strong feelings about their money. If they lose money because of something you said or did, they may sue you. 

IT consultants are sued for things like data breaches and errors that cause the computer system to go down, resulting in lost revenue. 

>>MORE: Where to Get No Down Payment Errors and Omissions (E&O) Insurance?

How Much does Professional Liability Insurance for Consultants Cost?

Insureon estimates that IT consultants pay about $730 a year, or $60 a month for professional liability insurance. If you’ve been sued in the past or want a policy with a higher limit (this estimate is based on a $1 million dollar occurrence limit with a $1 million dollar aggregate) you’ll pay more. 

Insurance for investment advisors or financial planners is more expensive. Insureon says the median cost of professional liability insurance for these professions is about $2,610 a year or $220 a month. 

According to FINRA (Financial Industry Regulatory Authority) they received 3,136 complaints in 2018. Your chances of being sued are increasing as society becomes more litigious.

The professional liability insurance cost for an accounting consultant is about $400 a year, or $35 a month. 

Insurance for investment advisors is higher because of the greater risk involved. If an investment advisor makes a recommendation and that investment loses money, the client will be upset. They could claim you breached fiduciary duty, which means you acted in your own best interests instead of the clients. USLegal asserts that a person acting in a fiduciary capacity is held to a high standard of honesty.  

Professional liability insurance will protect you from mistakes. Also, a lot of clients want you to have it and will be more likely to hire you if you do.

>>MORE: Errors and Omissions (E&O) Insurance Costs by Professions

What does Professional Liability Insurance for Consultants Cover?

Examples of mistakes clients could sue over include:

  • Errors in paperwork (failing to file on time, missing signatures. etc)
  • Providing incorrect information
  • Breach of duty (misusing client funds)
  • Misleading statements 
  • Claims related to performance (an investment you recommended loses money)

What Is Not Covered?

  • White collar crime
  • Intentional deception
  • Copyright infringement
  • Slander or libel
  • Discrimination

The amount of money you pay for professional liability insurance isn’t based on how likely it is that you lose a liability lawsuit, it’s based on how likely it is one will be filed against you in the first place. 

Now that we’ve agreed you need insurance, where should you buy that insurance?

Top 5 Errors and Omissions (E&O) Insurance Providers for Consultants

NAPA: Best for Investment Advisors

NAPA (also associated with Gallagher) offers low rates and an online application. Once you have your policy, you can pay either monthly or annually. You’ll also need a membership in NAPA, which is about $60.

A quote from NAPA suggests that E&O insurance for an investment advisor can cost from $72 to $228 a month depending on the advisor’s income.

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TechInsurance: Best for IT Professionals

TechInsurance offers online quotes. You can start your coverage in 24 hours and get a certificate of insurance at the same time. They insure tech professions from data analysts to web developers. 

They gave us an online quote from Philadelphia Insurance Companies for an IT business based in Ohio. It costs $699 in annual premium.

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The Hartford: Best for Accounting Accountants

The Hartford has errors and omissions (E&O) insurance for consultants, accountants, tax preparers, and more. They specialize in small business insurance, and they insure over a million small business owners. 

They have articles and resources to help support your accounting consulting business and can make recommendations on other policies to consider. 

For an accounting consultant, it quotes $34.5 a month.

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Biberk: Best for Tax Preparers

Biberk has an easy online quote system, giving us the quote below in under three minutes. You can purchase a policy, make the first payment and get a certificate of insurance online. 

You can make claims online as well. As a tax preparer, the potential for slight errors costing thousands is high and clients like to see that you have a professional liability policy in place.

For a tax preparer, it quotes $647 a year for professional liability insurance only, adding cyber liability insurance increases annual premium to $759.

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Markel: Best for Financial Advisors

Markel insures thousands of financial service professionals. You can keep your policy even if you change your business from fees and commissions to fee-only. As a Markel customer, you have access to their risk management and prevention hotline, which allows you to discuss potential lawsuits you think may be filed. 

To get a quote from Markel, you just give them your zip code and an agent will contact you. 

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Last Thoughts

Independent consultants work for themselves. As such, you don’t have a large firm’s protection and legal team to back you up if something goes wrong. Professional liability insurance will protect you in the event a customer is dissatisfied with your services and blames you for financial losses. Even if you never use it, it will help you sleep at night.

>>MORE: Best Professional Liability Insurance for Small Business

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