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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.

By Paul and Sarah Edwards

Opinions expressed by Entrepreneur contributors are their own.

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

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

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