Many business owners have taken proper steps to insure against property loss and injury claims, the more traditional forms of commercial insurance coverage. However, they may have overlooked protecting themselves against claims of professional negligence.

Errors and Omissions (E&O) insurance, also known as Professional Liability insurance, protects organizations or individuals against claims of financial loss due to negligence in the delivery of professional services. Professional liability related to errors or omissions, whether actual or merely perceived are not covered by General Liability insurance. (General Liability essentially covers claims of bodily injury or property damage.)

As the business climate grows more complex, so do the insurance needs of business owners, regardless of whether they employ hundreds of consultants or operate as a sole proprietorship out of their home. Errors and omissions insurance coverage is critical and it protects businesses in two vital areas: legal defense fees and settlement expenses.

Most E&O policies will cover defense costs, which, even if the allegations are found invalid, can cost tens of thousands of dollars. For many small businesses and individuals, high legal defense costs could lead to serious financial strain or even bankruptcy.

Who’s at risk?

Professionals who most commonly need E&O insurance include doctors, lawyers, engineers and consultants. However, there are a handful of businesses in which E&O coverage is often overlooked, these include advertising agencies, Web hosting companies, service providers, Web and graphic designers, and other Internet-based service companies. Nearly every organization that provides a professional service to a client for a fee has E&O exposure, and because professional requirements are typically undefined in legal terms, Professional Liability insurance shields businesses from the unforeseen.

In some cases, subcontractors may be required by the client to provide proof of General and Professional Liability insurance. Any business that provides specialized service or performs work on a project that is critically important to the client’s business, will want to insure themselves against E&O claims. This risk opens the contracted business to potential litigation. If a client perceives a task was not carried out as promised, they can file claims on several issues, including:

* Software or system failures that cause a client to lose profits
* Failure to perform duties
* Loss of client data
* Copyright infringement on Web site and software development
* Failure to meet pre-determined benchmarks on specific projects

While quality control can reduce the risk of errors and omissions, no company has complete immunity to it. Even with the best and brightest employees serving on the frontline, mistakes will happen and if the client feels the service was not completed as promised, if it costs the client money, or damages their reputation, then the company could be at risk of E&O litigation.

Ensuring the policy meets the company’s needs

Costs for errors and omissions insurance coverage vary significantly. Many factors are taken into account such as, the type of business, the type of services provided, the location, claim history, and size of the business. The competition among insurance providers, however, works to the business owner’s advantage, and the process for receiving an E&O insurance quote, cost comparison and detailed policy information should be fairly simple.

While the process will vary, some insurance company underwriters will ask for copies of contracts and descriptions of quality control procedures, while other underwriters may simply request an application be completed. When searching for an E&O insurance quote or reviewing a policy there are several key features to be mindful of:

* Coverage should include legal defense costs.

* Both W2 employees and 1099 subcontractors should be covered – the company should be protected against claims from work performed by 1099 subcontractors on the company’s behalf. In many cases, however, 1099 personnel are not covered and would need their own errors and omissions insurance coverage.

* Optional coverage for allegations of copyright and intellectual property infringement – this protects the company from claims alleging copyright infraction. Intellectual property infringement coverage is particularly important for software, systems or processes, as they are the most widely known “intellectual properties.”

* Personal injury coverage such as claims of libel, slander and invasion of privacy

* Worldwide coverage – this covers incidents regardless of where they originate.

Defending a claim

In the event a claim is filed, E&O insurance will adequately prepare the company to defend its case. It will pay for a strong legal defense and potentially save a small business or individual from severe debt. Unfortunately, laws and legal precedents that govern the technology industry are still under development, which often puts IT professionals in unknown legal territory.

However, while mistakes are bound to happen, there are a few steps businesses can take to mitigate claims:

* Have a written contract detailing what service will be provided, what is not included and the fees for delivering that service

* Communicate throughout the entire job; give the client realistic expectations upfront and provide regular status updates

* Implement quality control procedures, and regularly conduct audits to ensure the procedures are being adequately executed

Once the contract is written, be sure it contains very specific information, including:

* Limits of liability – the dollar amount per occurrence of liability

* A section detailing the services the company will be providing

A written contract is one way businesses and individuals can protect themselves, however E&O insurance will provide an extra layer of protection against the unknown and unexpected. Defending a claim is costly and time consuming. Regardless of whether a suit is deemed unreasonable, attorney fees will still need to be paid. In some instances, costs for defending a case can exceed the cost of a resulting settlement. E&O insurance covers attorney fees, any settlement costs that may result, and allows the business owner to continue operating without fear of potentially having to face bankruptcy or a mountain of debt.

By: James Cochran

About the Author:
James Cochran is the founder of Techinsurance. Since 1997, Techihsurance.com has been providing high quality professional liability insurance at a reasonable price to IT firms across the nation. They quickly became a leader in providing business liability insurance, and have since maintained their position as one of the top IT business insurance providers.

As a small business owner, chances are that you will eventually need to address some type of threat against your business. Whereas the threat comes from nature, a burglar, or your products themselves, it is very important for you to have protective measures in place to minimize the effects of such threats. It is very important to have different types of insurance to prepare you business against such threats.

Below are some insurance plans that your business should consider having:

Property Protection: Property insurance should include a broad form of coverage to protect your business from various possible losses. If you own a building, you will be required to have property insurance. However, if you lease your business’ space, the landlord should provide this coverage. Generally, this type of insurance should include coverage to protect your business in case of fire, flood, earthquakes, and, if possible, theft Liability Coverage: Product liability insurance protects your business if one of its products or services injures someone. On the other hand, a General Liability insurance will cover your business in case there is an accident inside of your business (i.e. the typical ‘I tripped because you floor was wet ‘). Business Interruption: Protects you against losses that your business incurs when it has to close down temporarily due to a fire or other natural disasters. Usually, it provides reimbursement for lost revenue and to cover certain operating expenses. Umbrella Insurance: This type of insurance offers extra coverage that becomes effective once the limits of your primary policy are reached. They usually provide excess coverage for liability insurance and worker’s compensation insurance. Health Insurance: This type of small business health insurance covers medical expenses if you get sick. It is common for many small businesses not to have this type of insurance, thinking that they cannot afford it. Shop around and you will see that there are many different business health insurance options available at different rates. Remember that health insurance plans might help you to attract new employees and retain talented employees. Worker’s Compensation: If your business has employees, worker’s compensation insurance will be mandatory. This insurance covers employees in the case of accidents related to their jobs. Startup businesses usually find that the State Compensation Fund can accommodate their needs; however, as the business grows, remember to ‘shop around’ to look for better alternatives.
Tip: Always remember to shop around in order to find competitive rates for your insurance needs. Always choose a policy that covers your needs and that insures your assets effectively. Most importantly, once you have found the adequate insurance, be sure to read the policy carefully and understand it fully before signing it.

By: Andrea Stiles Pullas

About the Author:
Andrea Stiles Pullas has written a series of finance related articles. For additional information on related topics, visit [http://yourmoney.accion.org/]

Commercial property rentals wit triple-net leases mean little management and high returns. However, this can be a tough market to break into, and you can have negative cash flow on vacant storefronts for a year at a time.

How about a real estate investment in which the renter pays not only the rent, but the taxes and insurance, and maintenance costs as well? That is the idea behind the “triple net lease.” It is common in commercial real estate.

Many companies make too much money on their products to have their capital tied up in a building or real estate. For example, if a retailer can turn over $500,000 worth of inventory six times per year, making 10% profit each time, they make $300,000, or 60% on that capital. It wouldn’t make sense to have that $500,000 invested in a building. This is why they rent. In fact, many large retailers will buy real estate, build their store, and then sell it to an investor who leases it back to them.

The triple net lease means that the investor has a guaranteed return on his investment, more or less. Rising property taxes or insurance rates don’t affect him, because the lessee pays these, as well as maintenance costs. Essentially, the owner of the property just collects the rent for the term of the lease. As you can imagine, these are deals that many investors would love to have.

Commercial Property Rentals – An Example

Suppose you find a building that is suitable for a furniture store or other retail store. You can get it for $600,000. You find that the bank will loan you $480,000, or 80% of the value – but only if you have a lease first. You have enough cash to invest (or a partner does), so you can handle the deal if you can find a renter.

The seller will give you an option on the property for $10,000 for four months, and will apply the option fee towards the purchase if you can close the deal. This buys you time to find a renter. Of course, you will lose the $10,000 if you can’t close the deal.

You hire a good real estate agent who has experience with commercial leasing, and get busy. After two months, you find a hot tub company that seems to be doing well and wants a store in your area. After checking out their references, you negotiate a rental rate of $4,500 per month on a ten-year lease. They also pay property taxes, insurance and maintenance expenses.

The bank loan is due in ten years, but amortized over 30 years, with eight percent interest. This means your payment will be about $3,500. Since the renter pays virtually all of the other expenses, this means you get positive cash flow of about $1,000 per month, or $12,000 per year. With a down payment of $120,000, and about $30,000 in other expenses, you have $150,000 invested, making it a cash-on-cash return of about 8%.

Your total return will be substantially higher. This is because you will get a depreciation allowance for the building at tax time, and you gaining equity with each payment on the mortgage loan.

Of course the company you rent to could go bankrupt. This is a real possibility. What happens then? You rent out the building to a new tenant hopefully.

This is where commercial real estate gets tricky. You have no cash flow when the building is empty, but you still have payments on the loan, as well as taxes, insurance and maintenance. In the example given, these could add up to $4,200 per month. You may also have to pay utilities, and advertising costs, and a fee to an agent to help you get the place rented again.

Now for the really bad news. It is not uncommon for commercial real estate to remain empty for a year or more. It takes time to find the right tenant for a building. It isn’t anything like residential real estate, where there are always a few buyers around, and they can live in many types of houses. Each business has its own particular needs.

Imagine that it takes thirteen months to get the place rented out again. The good news? Perhaps you can get $250 more rent this time. The bad news? Thirteen months of expenses, plus the expenses of re-renting it will likely add up to about $60,000. That means you have $210,000 invested now, and the cash flow of $15,000 represents just a bit over 7% cash-on-cash return.

If you don’t have the $60,000 to cover this period of vacancy, you may just lose the property – and your investment. As you can see, you need to have some large cash reserves or access to cash for situations like this. This is one of the reasons that there are relatively few investors who pursue these kinds of deals.

Of course, this means less competition than in some areas of investing. Then, when you do get a good ten-year tenant on a triple net lease, you get to enjoy the cash flow with none of the usual headaches of being a landlord.

You may want to find a mentor and study the market before considering any commercial real estate investments. Find out what kind of returns investors are expecting. Commercial property rentals have to pay you a higher return than residential property, because the risk of long vacancies is greater, as is the possibility of rents going down.

By: Steven Gillman

About the Author:
Copyright Steve Gillman. This article was an excerpt from 69 Ways To Make Money In Real Estate. Want to know the other 68 ways? Visit http://www.99reports.com/make-money-in-real-estate.html