Real estate transactions are complex, with the potential for mistakes that carry serious financial consequences. That’s why real estate agents and brokers need several types of insurance protection. Here’s a guide to real estate professionals’ insurance needs.

Errors and omissions insurance

The most common risk for which you as a real estate agent need protection is malpractice lawsuits. Defending a lawsuit from a dissatisfied client who alleges negligence, misrepresentation, failure to disclose or other violations can leave you with huge legal bills, not to mention court judgments if you lose. Errors and omissions (E & O) insurance protects you in this instance and is a must for real estate professionals. Some states require it. Your agency may pay for this coverage for you, but if not, you should obtain it for yourself.

E&O covers both your legal defense costs and possible judgments against you, up to policy limits, which typically are $1 million. If legal costs or a judgment against you exceed the limits of your errors and omissions policy, you will be liable for the excess. (Umbrella insurance may cover that excess – see below). 

If you operate as a sole proprietor or partnership, your personal assets are directly at stake in a malpractice lawsuit. To avoid this situation, set your business up as a corporation or limited liability company (LLC). In this case, the assets of the corporation or LLC are the first at risk. You may still be personally liable in two instances:

• When legal costs or judgments exceed the E&O policy limits as well as the assets of the corporation or LLC.
• When a court finds you liable for fraud. In this instance, the assets of both the corporation or LLC and you personally are vulnerable. Incorporation provides a buffer, but in certain circumstances, does not entirely protect against personal liability. 

If you are a real estate broker and one of your agents is involved in a malpractice suit, your brokerage corporation or LLC is liable, but your personal assets may not be at risk as long as you were not personally involved or aware of any malpractice in the transaction in question.

E & O insurance does not cover claims caused by dishonest or criminal acts by you or your agent. There can be other exclusions.

Commercial business insurance

You need commercial business insurance against liability for damages common to any business. If you lease your office space, your landlord’s insurance may not cover your business. Again, incorporating or forming an LLC provides an important layer of protection. Commercial business liability insurance protects in scenarios such as these.

• Where an employee negligently does something in the course of his work that causes harm to someone, such as a car wreck in which he was at fault.
• Where an injury occurs when someone slips on a wet floor in your office or trips over a broken step at the entrance.
• Where someone in your company uses someone else’s copyrighted or trademarked material without proper compensation to the owner.

Talk to an insurance agent about a commercial policy that protects against such liabilities and which also covers your office contents in case of events like a fire or storm.

Auto insurance

You already have personal auto insurance, but talk to an insurance agent about coverage for accidents in company vehicles that employees drive. If you use your personal vehicle for business, make sure your agent knows you use the car for business and review your personal auto policy to see if it covers accidents occurring while on company business.

Umbrella coverage

Finally, each type of liability coverage has its limits, such as $1 million to cover legal costs and $1 million to cover a damage judgment. As previously mentioned, you are liable for any costs above those limits. 

An umbrella insurance policy can cover the amount for which you are liable above regular policy limits. Since umbrella coverage supplements your regular policy, the premium cost is a bargain considering the amount of protection it provides.