Realtors: Are They Insured?

Real estate agents and brokers need insurance to protect themselves from the financial impact of property listing errors, damage to a client's home, and other costly accidents. They are subject to a number of potential lawsuits and claims as a result of carrying out their duties. A small error that is innocently overlooked could result in an expensive and devastating lawsuit. While health insurance is not often considered when building a real estate business, it is a must. According to the National Association of Realtors, 22-33% of its members are uninsured every year.

General liability insurance

Real estate professionals are exposed to a variety of legal risks and potential lawsuits. Realtors need to carry insurance to protect themselves and their personal assets from claims of negligence, malpractice, and other violations of their legal and fiduciary duties. One type of insurance that realtors should consider is general liability insurance.

Commercial General Liability (CGL) insurance is a type of general liability insurance that is specifically designed for real estate professionals. It protects realtors from third-party claims, even if the seller has insurance, as the realtor may still be sued directly by the injured party. CGL insurance covers defence costs and damages awarded. Examples of when a realtor may need CGL insurance include:

• Injury to a client or third party during an open house or private showing (e.g. slip and fall)
• Forgetting to lock up the home after a showing, allowing access to thieves or vandals
• Causing smoke damage by lighting a fire in the fireplace without opening the chimney flue
• Failing to remove snow for a customer, resulting in a slip and fall
• An open house sign blowing into the street and causing an accident

Errors and omissions insurance

Errors and omissions (E&O) insurance is a type of professional liability insurance that covers claims against your business for mistakes, negligence, or services you failed to provide. It is often called professional liability insurance, and the two terms are interchangeable in some industries.

E&O insurance is essential for realtors as it protects them from lawsuits by clients for negligence, malpractice, errors, or omissions made while providing a professional service. It also covers claims based on failure to do the work, meet a deadline, or otherwise fulfil the terms of a contract. For example, a realtor could be sued for not disclosing severe building defects, and E&O insurance would cover the legal fees and any damages or settlements.

E&O insurance does not cover claims for property damage, bodily injury, workplace injuries, data breaches, intellectual property violations, or criminal acts such as fraud.

The cost of E&O insurance varies depending on the size and nature of the business, but the average premium for a small business is around $735 a year. It is typically more expensive for businesses in high-risk industries, with a history of liability claims, or those seeking higher coverage limits.

Some professionals, including attorneys, contractors, and medical professionals, are required by state or federal law to have E&O insurance. Real estate agents in Tennessee and Rhode Island, for example, must have an E&O policy to be licensed. Even if it is not a legal requirement, realtors should strongly consider E&O insurance to protect themselves from potentially devastating financial losses resulting from negligence.

E&O insurance is a separate policy from general liability insurance, which covers claims related to injury or property damage.

Workers' compensation insurance

In most states, workers' compensation insurance is mandatory for businesses with employees, including real estate offices. This insurance helps cover medical bills, ongoing care, and missed wages for employees who suffer work-related injuries or illnesses. Even a minor injury, such as tripping on an uneven step, can result in significant costs and time away from work.

Additionally, workers' compensation insurance can protect your business from employee injury lawsuits. For example, if an employee claims that your negligence led to their injury, employer's liability insurance, typically included in workers' compensation, can help cover legal expenses.

The cost of workers' compensation insurance is based on your business's payroll and the type of work your employees perform. It's important to note that sole proprietors, independent contractors, and partners are not required to carry this type of insurance. However, purchasing a policy to protect yourself is recommended, as health insurance providers may deny claims related to job-related injuries.

Failing to provide workers' compensation insurance when required can result in stiff penalties, including fines or even jail time. For example, in California, if a real estate agent of an uninsured broker is injured and cannot collect benefits through the broker's policy, the agent can receive benefits from the Uninsured Employers Fund (UEF). The UEF will then attempt to collect from the broker, and the broker may face penalties of up to $100,000 for being illegally uninsured.

Business owner's policy

As a realtor, you face a variety of risks, including theft, fire, lawsuits, and other events that could potentially cost you time and money. A Business Owner's Policy (BOP) is an insurance package that combines several property and liability protections into a single policy for small- and mid-sized businesses.

A BOP typically includes three types of insurance: general liability insurance, business property insurance, and business interruption insurance.

General Liability Insurance

This type of insurance covers the cost of defending against lawsuits alleging bodily injury, property damage, or personal injury. It can also cover medical claims. For example, if a client visiting your office trips on a rug, gets injured, and sues you, general liability insurance will provide you with the means to defend yourself against such claims.

Business Property Insurance

Business property insurance can protect the building that your business is housed in, as well as your equipment and inventory. If your property is vandalized, stolen, lost, accidentally broken, or damaged by weather, business property insurance will pay for the repair or replacement of the property.

Business Interruption Insurance

Business interruption insurance covers lost income when your business has to temporarily slow down or stop operations due to vandalism, theft, or a covered disaster. It can help you continue to meet your obligations, such as payroll, even when your business cannot generate revenue.

Other Coverages

A BOP can also include other coverages, such as:

• Loss of business income: This covers ongoing expenses, including payroll, if a covered claim prevents you from using your office or facility.
• Equipment breakdown: This covers the repair or replacement of equipment damaged by power surges, mechanical breakdown, burnout, or operator error.
• Personal and advertising injury: This protects against copyright infringement, libel, and slander claims.
• Medical payments: This covers medical expenses resulting from injuries to others on property you own or rent.

What a BOP Does Not Cover

It is important to note that a BOP does not cover everything. It typically excludes auto insurance, workers' compensation, health insurance, and professional liability. For these types of insurance, you would need separate policies.

Cost of a BOP

The cost of a BOP can vary depending on factors such as coverage limits, industry, value and type of property, business location and age, size of the business, and claims history. The median cost is $53 per month or $636 per year, but it can range from $300,000 to $4 million in coverage.

Eligibility for a BOP

Not all businesses qualify for a BOP. Insurance providers determine eligibility based on business location, the size of the location, revenue, and class of business. Typically, businesses with fewer than 100 employees or less than $5 million in annual revenue are eligible for a BOP.

As a realtor, a BOP can provide essential protection against a variety of risks and help ensure that your business assets are covered in the event of a crisis.

Commercial auto insurance

• Damage to the vehicle(s)
• Injury to someone else
• Damage to someone else's property
• Liability arising from a motor vehicle accident
• The cost to repair or replace a damaged, maintained, or used vehicle by the company
• Medical expense coverage and uninsured motorist coverage for individuals insured on the policy
• The cost of renting a replacement vehicle to keep the business operating

There are various types of commercial auto insurance policies, including:

• Non-trucking liability insurance
• Dump truck insurance
• Owner-operator insurance

Frequently asked questions