The threat of malpractice is commonly thought of as the exclusive worry of the medical and legal professions, a concern that no retail store owner or computer IT professional would ever need to consider. When writing a business plan, however, you should know that this view, while prevalent, couldn't be further from the truth. In reality, liability for malpractice and/or errors and omissions (E&O) extends throughout virtually every industry and can touch professionals in different positions, different markets, and different levels of authority. Therefore, when writing a business plan, if you find yourself wondering if the business plan should include malpractice insurance, then you should stop and thoroughly investigate your exposure and professional liabilities before completing even the first draft.
If your business is going to be service-oriented, the standard insurance it will carry probably will not cover malpractice contingencies at all. Typical business owners have policies that cover liability issues stemming from property loss or equipment malfunctions, but only E&O insurance will serve any purpose if your company is accused of providing improper or insufficient service. Even if your products are top-notch, and even if you are committed to providing superior service at every turn, you can still be sued by a client or customer who believes they have a legitimate grievance. When writing a business plan, you need to make an allowance for this contingency. Budgeting for E&O insurance from the get-go is your best bet.
You should shop different E&O policies, and closely read the fine print, before you finish writing a business plan. There is no standard E&O insurance form, so the terms and conditions can vary widely. The worst-case future scenario, of course, would have you arguing with the insurance company about your coverage instead of focusing on resolving the customer's claim. The extent of the E&O coverage is the most important factor to review carefully; some plans will cover not only employees directly under your control, but also any subcontractors you employ. It is also vitally important that you compare the premiums of different plans, and the rates they offer. Professional insurance is not as transparent as most other forms of insurance, so when writing a business plan, make sure you perform your due diligence on the E&O front.
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