Best Insurance for Securities and Investments

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Contributor, Benzinga
October 7, 2020

If you’re a financial advisor, broker or asset manager, your business could potentially handle millions of dollars on behalf of your clients. This line of work exposes you and your employees to a number of liabilities, which can potentially bankrupt your business if a customer decides to sue you.

A comprehensive business insurance policy can protect yourself, your business property and your livelihood from lawsuits and damages. Our guide to insurance options for securities and investment managers will help you compare policies and find the best option for your needs. 

Best Securities and Investment Insurance

There are many companies offering insurance options for investment and security managers. The best policy option for you will vary depending on where you live, how many employees you hire, your company’s revenue and more. Exploring multiple insurance providers and comparing quotes from competitors can help you ensure that you aren’t overpaying for coverage.

Not sure where to begin? Start by considering a few of our favorite providers below.  

Types of Securities and Investment Insurance

There are multiple types of securities and investment insurance that your business might need. Let’s take a look at some essential coverages you’ll want to consider as a financial professional. 

Errors and Omissions Insurance

Errors and omissions insurance or “professional liability insurance” is a type of insurance protection that compensates you if a client believes you conducted your business in a negligent manner and decides to sue you for damages.

For example, let’s say that you’re a registered investment advisor who recommends a certain mutual fund to 1 of your clients. The client decides to invest in the fund at your recommendation and losses money. If the client believes that you represented the investment improperly or failed to inform him or her of all the risks that come with that particular investment, they can sue you for negligence.

In this circumstance, your errors and omissions insurance would help you pay for the cost of legal defense for your business. Errors and omissions insurance is a crucial protection for finance professionals, especially if they manage high-value accounts. 

Cyber Liability Insurance

Cyber liability insurance is a type of policy that helps you correct damages and cover legal expenses if your company suffers a hack or has sensitive data accessed by an unauthorized party. Most cyber liability policies include 2 types of coverages:

  • 1st-party damages: This damage protection compensates you for expenses that you incur after suffering a data breach. Some examples may include investigation costs to determine who accessed the data and how credit monitoring services for clients whose data was compromised and costs associated with informing clients of the breach.
  • 3rd-party damages: This protection compensates you for legal costs that you incur after a hack. For example, if a client believes that you were negligent in protecting their data, they might sue you. In this case, your 3rd-party damage protection would help cover the cost of legal defenses and any court-awarded judgments.

As a general rule, you can expect your cyber liability insurance to protect you against financial losses you incur both during and after a data hack. Like errors and omissions protection, this is another essential for financial professionals who have access to sensitive data. 

Data Breach Insurance

Data breach insurance is another type of protection that you might want to consider if you don’t store customer banking data on your servers. Data breach insurance only compensates you for the costs you incur informing customers of a data breach after it occurs, an expense that is required by law in most states. If a customer wants to enroll in a credit monitoring service following the hack, your data breach insurance may also help cover this cost.

Data breach insurance won’t compensate you for any type of legal or investigation expenses. You can think of data breach insurance as a less comprehensive form of cyber liability insurance. If you have errors and omissions insurance, you may already have data breach protection. Check your policy terms to learn more about your specific coverage.  

General Liability Insurance

General liability insurance is a type of protection that compensates you if you’re sued by one of your clients. General liability protection encompasses a wide range of coverages, including:

  • 3rd-party property damage: If you or one of your associates damages a client’s property, they might sue you for a replacement. Your 3rd-party property damage protection helps cover the costs of legal representation and court-ordered judgments.
  • 3rd-party bodily injury: If you work from a commercial space and clients come to visit you, you might be held liable if a client injures themselves on your property. If you’re sued for medical bills, your 3rd-party bodily injury coverage helps cover legal costs and court-awarded medical bills.
  • Advertising injuries: If you accidentally slander or defame a competing security or investment firm, the wronged party might sue you. Your general liability coverage will help compensate you for court-awarded judgments and representation resulting from a libel, slander or copyright infringement lawsuit.

The specific coverages included in your policy may vary by the insurance provider. Be sure to read your policy thoroughly before you sign on so you know exactly what’s covered. 

Commercial Property Insurance

If you work from a commercial space, you should have some form of commercial property insurance. Commercial property insurance is similar to homeowner’s insurance because it compensates you for damage incurred to your property as a result of covered perils. For example, if you suffer a break-in and your equipment is stolen, your commercial property insurance will usually cover the costs associated with replacing your property and repairing your space.  

Business Owner’s Policy (BOP)

A business owner’s policy (BOP) is a special type of coverage that combines your general liability insurance and your commercial property insurance with a single policy. Most business owners prefer to purchase a BOP over individually purchasing both these coverages separately because it’s almost always more convenient and affordable. 

Cost of Securities and Investment Insurance

The specific price that you’ll pay for your securities and investment insurance will vary depending on a number of factors. Some of the factors that may influence the final price you’ll pay for coverage may include:

  • Your business revenue: The higher your business income, the more an insurance provider may have to pay out in a potential lawsuit. Expect your insurance expenses to increase as your business’ income increases.
  • Amount of assets under management: If your company is responsible for managing large accounts and investing for high net-worth individuals, you’ll pay more for your insurance coverage.
  • Type of data accessible to your company: If your company is authorized to invest on behalf of individuals or institutions, you probably store very sensitive banking information on your company services. This increases the price you’ll pay for insurance, particularly if you purchase a comprehensive data breach protection policy. On the other hand, if you simply provide basic financial planning services, you’ll usually pay less for insurance.
  • Number of employees: If you have at least 1 employee, you may need to purchase workers’ compensation insurance. Workers’ compensation insurance is an additional type of protection that compensates your employees for medical expenses if they’re injured in the course of their work.

Depending on where you operate your business, you may need to purchase workers’ compensation insurance as soon as you hire your first employee. As your payroll increases, so do your workers’ compensation liabilities.

  • Your claims history: Have you filed a business insurance claim in the past? If you have, you’re statistically more likely to need to file an additional claim in the future. Expect to pay more for your coverage if you already have a claim on your record.

It’s impossible to anticipate exactly what you’ll pay for your insurance until you speak with a company representative. Because each insurance provider uses its own individual formula when determining rates, it’s possible to receive the same coverage from 10 different companies for 10 different prices. We recommend collecting quotes from at least 5 competing investment and security insurance providers before selecting your policy. 

How Securities and Investment Insurance Works

Securities and investment insurance isn’t a singular type of insurance. Instead, it’s a combination of policies that financial planners, security managers, investment advisors and other financial professionals use to limit their company liability.

Professionals who work with sensitive financial data should maintain a comprehensive errors and omissions policy as well as a cyber liability insurance policy as their minimum coverage. If you have a physical location where clients can visit, you will also likely want to add a general liability and commercial property insurance policy to protect yourself from additional lawsuits and damages related to visitors who make a trip to your worksite. You may be able to combine these policies together in a single BOP at a more affordable rate.

Additionally, you might need to purchase workers’ compensation insurance if you hire at least 1 employee. Workers’ compensation laws vary by state, so speak with a local insurance representative to learn more about insurance laws in your area and the type of coverage you must have to operate legally. 

Getting the Coverage You Need Now

Finding the right insurance for your business is essential to protecting yourself, your income and your employees. Don’t be afraid to take plenty of time comparing policy options, prices, coverage levels and limits between multiple companies before you choose the right company for your needs. You have no idea how much you could save on your insurance until you know exactly what’s available.