Real Estate Insurance: I think I can afford it but not sure!

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If you are an outgoing personality looking for a job with flexible hours and a high-income potential, you may want to consider a position as a real estate agent. While it does require hard work, investing in a career as a real estate agent can really pay off over time.

However, as with a lot of professionals that provide advice, there is the potential for a lawsuit to bring your developing real estate practice down. Which is why you want to ensure that you properly protect your real estate practice with a Professional Liability policy. Without one, your practice may be finished before it becomes truly profitable.

Plenty of articles out there will explain why you need to protect your business with an insurance policy. But what stops most business owners from taking that critical step of protecting themselves is the cost involved. Working out how much a Professional Liability policy costs and what factors can affect the cost of premiums can be confusing.

It’s not as complex as it may seem.

Let’s start with;

How much does Professional Liability insurance cost?

Unfortunately, there isn’t a straight forward answer to this, as there are many factors that need to be considered when calculating premiums.

Google “how much does a Professional Liability policy cost” and you are going to find page after page after page of results with price ranges all across the spectrum from 30 to 300 dollars per month!

The reason there are so many different results is that there are many factors that go into the mix of determining the final policy premium. Basically, no two policies are the same.

How the cost of your policy is calculated?

To get an idea of what your final policy may cost, you need to review the various factors that go into determining your final premium.

Carrier’s base rates – Rate adjustments are built off the back of what’s called a “base rate”. This is the rate that your carrier files with the Insurance Department. That rate will be adjusted due to a variety of factors. A carrier that specializes in your industry or your specific type of policy will generally have lower base rates.

Business information – The size of your company, the number of transactions completed each year and the cost of the transactions will all factor into the final rate. A real estate office with 5 agents on staff will bear far greater risk than a one-person shop.

Claim History – If you have had a lawsuit filed against you in the past, this will significantly increase your rate, as you will be considered a high-risk client.

Limits and deductibles – Limits and deductibles are the only factors that you have in your control when it comes to determining the final premium. As the policy limit increases, the premium will increase. An increase in the deductible, meaning the amount of the claim that you agree to pay off yourself, means a reduction in the final premium.

Prevent The Problem – Don’t Cure It.

When it comes to insurance, risk management is everything. While an insurance policy will help in offsetting the often-exorbitant costs of a lawsuit, a risk management plan is a far savvier option. It can help you avoid the lawsuit altogether!

Risk management plans are essential as they identify the potential risks your company may be vulnerable to while providing solutions to mitigate those risks.

A risk management plan can be as detailed as you want. Here are a few risks that can be addressed with a well-formed risk management plan.

Risk– “he said she said” situations

Risk Management Plan Solution: Create procedures for documenting all correspondence, whether verbal or written, that pertains to the transaction in question. For example, consider sending customers an email summarizing the content of all verbal conversations.

Risk– a home inspector performs a poor job, but because you recommended him, the client now holds you responsible.

Risk Management Plan Solution: Recommend 2-3 inspectors or appraisers and leave the final choice to the homeowner. Also, consider putting in place a procedure to properly vet the inspectors and appraisers before creating a new business relationship.

Risk– a customer feels discriminated by an employee in your company.

Risk Management Plan Solution: Create an anti-discrimination policy and enforce it. Ensure that all employees treat customers, prospects, and contractors equally and honestly. Define clear consequences for any infractions against the anti-discrimination policy.

Professional Liability Policy

It doesn’t matter whether your real estate business just got off the ground, or if you have been in business for ten years! You cannot make it in the long run without protecting your business.

We live in a very litigious society and the potential damages of a lawsuit could be financially devastating to your business.

If a lawsuit is filed against you, those damages must be paid one way or the other. Wouldn’t you prefer it to be paid from your policy and not your pocket?

Having the protection of a professional policy gives you the added benefit of access to a team of insurance professionals that can help coordinate the of a claim for you. Your first lawsuit will be overwhelming, but your carrier can recommend an attorney who specializes in real estate. as well as putting you in contact to dedicated claim personnel that can answer any question you may have during the process.

A lawsuit has the potential to bankrupt all your hard work. Why not take the simple steps to ensure that you do not fall victim?

Exposures

“That would never happen to me.” We often tell that story to ourselves. But real estate agents do business with many clients, and that exposes them to a great deal of risk. The more clients you work with, the higher the chance that one could open a claim against you.

Here are some examples of potential claims that could occur in your time as a real estate agent

  • Failure to disclose a lien on the property to the buyer
  • Failure to disclose any known health concerns or zoning issues to the buyer
  • Failure to disclose structural flaws in the listing
  • Inaccurate property descriptions in the listing
  • Perceived discrimination
  • Failing your fiduciary duty by not working in the best interest of the client

General Liability Policy, Not Enough?

The term “liability insurance” can be quite confusing. General Liability and Professional Liability are two types of liability policies that each serve a precise function and cover you for very different situations.

Professional Liability covers you for specific professional services and the resulting financial loses while General Liability covers other predicaments such as slips and falls, advertising issues or property damage.

Minimum Amount of Cover

When considering your policy’s limits, you should balance cost against the coverage you need. A knowledgeable insurance agent is there to help you strike a perfect balance between needlessly going over budget and under insuring your company.

A quick rule of thumb is to think about the average cost of each transaction and the number of transactions you make per year. This will help you to determine a more accurate level of coverage you may need.

Conclusion

If you are going into business as a real estate agent, it’s time to get yourself a Professional Liability policy. Your money and your future are on the line! Smaller companies can be completely bankrupt by the earth-shattering consequences of a lawsuit, and larger companies may find themselves severely crippled.

And while there is no immediate answer to how much a Professional Liability will cost you, the answer of the opposite question is easily to be find. What would it cost for you not to have one? How much can your real estate business afford to lose?

Click here and complete a few, simple questions to get your quote and begin protecting your real estate business.

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