The exclusions
are the policy.

Defense costs are frequently the larger number. Most claims that go anywhere do not reach a verdict — they reach lawyers.

What it covers

Errors-and-omissions coverage, sometimes sold as professional liability, responds to claims that your advice or your service caused a client loss. Typically it pays defense costs and settlements within limits, subject to a retention.

Defense costs are frequently the larger number. Most claims that go anywhere do not reach a verdict; they reach lawyers.

What it does not cover

Dishonesty and fraud. Regulatory fines and penalties, in most policies. Claims arising from conduct before the policy started, unless you bought cover for it. And activities outside the scope described in the application — which is where an undisclosed outside business becomes an insurance problem as well as a compliance one.

The mechanic that surprises people

These policies are usually written on a claims-made basis: they respond to claims made during the policy period, not to advice given during it. Let the policy lapse and you are exposed for work you did while insured.

This matters most at two moments: switching insurer, and retiring or selling. In both cases the answer is extended reporting cover, priced as a multiple of the premium, and it is not something to discover during the transition.

How much

There is no formula. The considerations are the size of the largest relationship you could plausibly be sued over, what your custodian or partners require of you, what the deductible does to your cash if a claim lands, and whether the limit is eroded by defense costs — because a limit that pays the lawyers first is a smaller limit than it appears.

What insurers ask, and why the answers matter

Assets, client count, the services you provide, whether you have discretion, whether you use alternatives, your compliance history. Answer precisely. An inaccuracy on an application is the cheapest way to have a claim declined at the worst possible time.

The related cover

Cyber is a separate policy and increasingly not optional; a client-data incident is not what errors-and-omissions coverage is for. Bonding requirements may apply depending on the arrangements you operate under.

What standing up a firm costs →