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Do I Need Errors and Omissions Insurance?

Insurance needs vary from business to business. Before you plunk down your cash, make sure you have to.

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This story appears in the August 2001 issue of HomeOfficeMag.com.

Q: I want to start a small homebased business to supplement my retirement income. I am finding the cost of errors and omissions (E&O) insurance is prohibitive for homebased businesses (we got one quote of $2,000), but very reasonable for larger, conventional businesses. Why can't I find E&O coverage at a reasonable rate?

A: Before you start shopping for E&O insurance, answer this question: How real is your need for E&O insurance? Does the type of work you plan to do entail much potential for liability? If technology is involved-like being responsible for multimedia arrangements at sales presentations-then we would say yes. But some types of businesses allow you instead to create a client agreement that protects you, making the client assume the risk. I would not do this without having an attorney involved who can help you determine whether such a clause would scare away clients. If, on the other hand, contracts in your industry require E&O coverage, provide a warranty or guarantee, or have clauses that require you to indemnify or hold harmless your clients, you need to start shopping.

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