I'm a Careful Agent. What Risk Do I Possibly Have? What is "Risk Management" Anyway? Anatomy of a Standard Form Financing the Sale Payments, Penalties and Charges I'm a Careful Agent. What Risk Do I Possibly Have? What is "Risk Management" Anyway? Anatomy of a Standard Form Financing the Sale Payments, Penalties and Charges I'm a Careful Agent. What Risk Do I Possibly Have?Risks are everywhere and every occupation has them, such as, an undercover C.I.A. agent who may risk getting caught for spying or an engineer at a nuclear power plant who may have the risk of getting radiation sickness. Although the risks a real estate agent faces are less dramatic, it does not mean they are any less "real," and they must be dealt with appropriately.
Before you can figure out your risks, you have to be aware of what kind of losses are possible.
The dictionary defines a risk as "the possibility of suffering harm or loss." So what kind of harm or loss is possible for an agent? Figuring out this range of possibilities is the first step in evaluating risk. Most people don't like to dwell on the negative possibilities in life, as such, agents might only consider the biggest harm that can be a disaster to their pocketbook: lawsuits. Sure, as far as harms go, an agent might twist an ankle from uneven cement when showing a house or maybe get a very nasty paper cut. Agents don't have to worry about getting executed for spying or getting fried by radiation, so they get an insurance policy to cover lawsuits and some health insurance to cover crutches and band-aids, and they're done, right? Not even close. The risks that you encounter, as an agent, in your real estate profession are much more varied and complicated than that.
We live in California, which happens to be one of the most lawsuit-prone states in the U.S.. Lawsuits are just a fact of life here. Naturally, lawsuits are probably the first things that pop into agents' minds when they think about risks in their line of work. Unfortunately, as we will explore in this course, the list of reasons for which agents can be sued is long, but, there are many other ways to sustain losses or injuries than just through lawsuits, and there are many other losses to consider than just money.
Every time your insurance company raises its rates, it's a loss for you. Every extra dollar you spend on insurance is one less dollar you can spend on things you enjoy, such as, clothes or a great restaurant. Also, the higher the cost of insurance, the more work you have to do in order to make a profit, and so, you lose time and money when your insurance rates go up.
The high cost of agent's insurance coverage has been a hot topic for a while now. The kind of insurance coverage that agents professionally is typically called errors and omissions insurance, often shortened to "E&O" insurance. E&O insurance, as you might guess from its name, covers errors (clerical or judgment errors) and "omissions." What "omissions" means here is type of error, not based on what you do, but instead on what you don't do. An omission is when you don't do something that you should have done. For example, if you fail to inform a buyer of some information that is legally required to be disclosed, this is technically called an "omission." Simply put, E&O insurance is coverage for your professional mistakes.
Not surprisingly, insurance companies are out to make a profit. The only way they can make a profit is if all the premiums they collect (the money all the agents pay for coverage) is more than the amount they have to pay out. Every time one of the agents they cover gets sued, they have to pay - sometimes quite a lot. When enough agents get sued, insurance companies raise their premiums to cover their costs. So you, as an agent, are paying more for your insurance because agents in general are getting sued left and right. Even the most careful agent who never gets sued is paying indirectly for all those agents who do get sued.
In addition, just like "high risk" drivers, "high risk" agents have to pay even higher insurance premiums. The worst part is that you might get stuck into a "high risk" category through no fault of your own. We have all heard enough stories about unjustified lawsuits to know that you don't need to do something wrong in order to get sued. Fortunately, insurance companies rate your risk category on more than just lawsuit statistics. One factor that is commonly considered is whether an agent has taken a class on risk management. By taking this class, you are doing your part in lowering insurance premiums. (If only all agents were as responsible as you in taking this course, just think about how many lawsuits could be avoided.)
In summary, one significant loss agents face in their occupation is higher insurance premiums. This loss will be higher if you tend to get sued a lot, but rising insurance rates affect all agents, even if you are a "low risk," careful type of agent. Unfortunately, most agents have no choice but to get E&O insurance because it would only take one bad lawsuit to wipe out an entire life's savings, however, as you will see in later lessons, even if you get E&O coverage, you also cannot simply depend on insurance to cover you. Insurance policies are never an automatic safety net. There are giant holes in this kind of safety net, and there are other problems too with blind reliance on insurance.
Click below to go to the Risk Management Test Drive Quiz. Select your answers to the quiz questions and then click the GRADE button at the bottom of the quiz.
Immediately after you submit your quiz we will send you a summary of your results including:
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