Why Buy Individual Real Estate Agent E&O Insurance?

You’re a successful real estate agent with an increasing number of transactions. You’re probably not thinking about your E&O insurance, right? Why would you, the brokerage you work with has you covered, right? Don’t be so sure. Do you really know what you need to about the firm’s real estate agent insurance protection? Should you buy individual real estate agent E&O insurance? These are fair questions that are shared by many real estate professionals.

In this post, we’ll explore the reasons real estate agents should consider purchasing their own E&O insurance policy. We’ll help you make an informed decision about what’s best for you and your business, and give you tips to get started.

What is E&O Insurance?

Let’s clarify what real estate agent E&O insurance is and why it’s important. E&O insurance, also known as professional liability insurance, is protection for professionals from financial damages and legal claims arising from mistakes made in the course of their work. For real estate agents, E&O insurance can cover everything from misrepresenting a property, or double contracting, to failing to disclose a defect to a buyer.

Doesn’t the agency owner or brokerage carry E&O Insurance?

Just because your brokerage already has E&O insurance, doesn’t mean you’re properly covered. That may not be the case. While your brokerage’s policy may provide some protection for you as an individual agent, there are reasons you should consider getting your own policy.

Let’s explore some of the reasons why you should buy an individual real estate agent’s E&O insurance policy.

Does the brokerage policy offer enough coverage?

It’s important to remember that your brokerage’s E&O insurance is designed to protect the brokerage. It’s not explicitly your coverage. While you may be covered under the policy, the coverage may not be enough to cover all your potential liabilities. For instance, if there are multiple agents at your brokerage, the policy may have to be divided among all the agents in the firm. This means that the coverage you personally receive is limited to your quota share of the aggregate limit.

You can also avoid gaps in coverage

Your firm’s real estate agent E&O insurance may not provide coverage for some of the things you do regularly. In fact, it’s not uncommon that the firm’s policy doesn’t have coverage for discrimination, open house, or showings liability. These are things you probably do all the time. When you purchase individual coverage, you can negotiate the coverage that’s right for you. Translation, these essential business activities can be covered under your own individual real estate agent E&O policy. Now, when you are showing a property, if a potential buyer is injured or damages the property during an open you can be confident you have protection.

What happens if you change brokerage or firm insolvency?

What would happen to all your historic transaction if you changed firms? If you’re working for a new firm, would your former firm’s coverage protect you in the event of a claim? Don’t count on it. Remember, the E&O coverage of the firm is not in your name. Therefore, claims brought against you may not be covered under the form firm’s policy. Where would you get coverage? The coverage under your new firm won’t provide coverage for transactions completed under your former firm.

Similarly, if your firm suddenly closes its doors, where will you get coverage on your prior transactions? Large firms, like small ones, do fail. They do file for bankruptcy protection, and when they do, they frequently cancel their E&O insurance.  When brokerage policies cancel or lapse, all the licensees are without coverage for all current and prior transactions. This not only leaves you without coverage, but it also disrupts your prior acts’ date. This subjects you to a lapse of your own, even after you purchase an individual policy.

How to buy individual real estate agent E&O insurance?

Now that we’ve covered why you might want to consider getting an individual real estate agent E&O insurance policy, let’s explore some tips to help you buy good coverage. The first step is to do your research and find a reputable insurance provider. You want an insurance agent and carrier who offers E&O insurance for real estate agents. You can start by asking other real estate agents for recommendations or by doing a quick online search.

Once you’ve identified a few potential providers, it’s important to read the policy details carefully and make sure you understand exactly what’s covered (and what’s not). You’ll want to pay particular attention to the policy limits, deductibles, and any exclusions or limitations that may apply.

When it comes to determining how much coverage you need, there’s no one-size-fits-all answer. The amount of coverage you require will depend on a variety of factors, including the size and complexity of your business, the types of transactions you’re involved in, and your own personal level of risk tolerance. It’s a good idea to consult with an insurance professional to help you determine the appropriate level of coverage for your specific situation.

The bottom line

It’s worth noting that E&O insurance isn’t just a nice-to-have – in many states, it’s required by law. Even if it’s not mandated in your state, it’s still a good idea to have a policy and protect yourself from potential liabilities.

While your brokerage’s E&O insurance policy may provide some protection for you as an individual agent, there are good reasons to consider your own policy. By doing so, you can get the coverage you need, regardless of what happens at the brokerage level. Just make sure to do your due diligence and research different insurance providers to find the best policy for your needs. Keep in mind that the cost of E&O insurance can vary depending on a variety of factors, including your location, the size of your business, and the level of coverage you require.

If you need more advice, contact your insurance agent. If you don’t have one, contact us, and a real estate expert can help you find the right coverage.