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As a debt counselor, your clients depend on and trust you to help steer them in the right financial direction. Oftentimes, your clients are deep in debt, suffering from bad credit, and looking for a way to manage their many financial obligations. Moreover, the industry is riddled with scammers trying to take advantage of those with debt, so finding a debt counseling service clients can trust is incredibly important.
The services that you provide for your clients, from building financial plans to negotiating payments to creditors, play a critical role in the financial health and futures of your clients’ lives. Clients trust your business with not only giving the the right advice to relieve their debt, but also keeping safe their confidential and sensitive financial records, tax information, and more. Your work bears significant responsibility, and with that comes a measure of risk. Just one misguided recommendation or clerical error can have a lasting impact on a client’s already stressful financial situation. Your business could be held liable for a litany of charges, from professional errors to misleading advice.
That’s why it’s important to make sure your business is covered with the right insurance policies in the case of client lawsuits. Moreover, just as any business owner should, you need to consider the everyday risks of running a business, from natural disasters to employee injuries. Take the appropriate steps to prepare your company for any unfortunate events that could take a serious toll on your finances.
Consider purchasing business insurance for your debt counseling business if:
- You would like to insure your services against claims of poor performance or professional errors
- You store sensitive customer data like bank account information or credit reports
- You employ others
- You provide employee benefits like health insurance or retirement plans
- You lease or own your own office building
- You store valuable equipment or property in your office
- Customers or clients visit your office
What insurance coverage do I need as a debt counselor?
Here are some of the most critical business insurance coverages debt counselors should consider, along with a few examples of how these coverages might be applicable to your business.
Professional Liability Insurance
As a debt counselor, you are tasked with advising your clients in their debt obligations. Your plans and recommendations can help put your clients on the successful path to a debt-free future, but at the same time, you may face dissatisfied customers if your guidance turns out to be ill-advised. Professional Liability Insurance, also known as Errors & Omissions Insurance, can protect you from client claims of poor performance, mistakes, or negligence. If a client suffers financial damages due to the work you’ve performed for them, they may sue you for damages. Professional liability insurance can protect you financially in this scenario, helping to cover any legal fees, judgements, or settlement costs.
- Errors/Negligence: A client hires your firm to help him resolve his outstanding credit card and student loan debt. You prepare a plan for him, but you use the wrong interest rates for his loans. Because of this, the client unwittingly suffers penalties from his creditors. He sues you for damages.
- Misleading statements: You recommend a debt management plan (DMP) for your client and indicate that there is no fee. Your client later finds out that there are several hidden fees, and he sues you for misleading statements.
- Performance: You create a plan for your client that includes consolidating his loans and entering into a debt management plan. He follows your plan but is ultimately unsatisfied with how quickly he is able to reduce his debt load.
- Lawsuits without merit: You are sued by a client who claims your professional advice caused him to suffer financial losses. Upon further investigation, you find out that the client actually did not follow any of your advice, which you believe to be the cause of his losses.
Commercial General Liability Insurance
Commercial General Liability Insurance protects your business from lawsuits claiming property damage or bodily injury caused by your business or your employees. While third-party physical injuries or property damage are less common in the financial services sector, general liability insurance is still considered a basic coverage to have in order to protect your business against the financial consequences of lawsuits. Third-parties may include anyone who is not an employee of your business, such as a vendor, customer, or landlord. General liability insurance also covers non-physical injuries such as libel, slander, copyright infringement, or false advertising.
- Property Damage: You are renting new office space, and as you are moving in all of your office equipment and furniture, you accidentally shatter the glass front door to the building lobby.
- Bodily Injury: A client visits your office to go over his credit reports, and as he walks into your lobby, he trips over a loose electrical cord. He injures his hip and needs medical treatment.
- Personal and Advertising Injury: In your latest online advertising campaign, you use a local celebrity’s face without obtaining permission.
Commercial Property Insurance
Commercial Property Insurance protects the investment you’ve made in your business property, including office space, equipment, computers, furniture, artwork, and other property that you use to run your business. If a fire destroys your office building or your computer equipment is stolen from your office—these are all cases where property insurance would cover you for the value of the property that is damaged or destroyed. Commonly covered causes of loss include fire, lightening, wind, hail, explosion, and vandalism. Note that commercial property insurance does not cover any vehicles your company owns. For that coverage, you’ll need commercial auto insurance.
- Buildings: An overloaded electrical outlet in your office overheats and catches fire overnight, causing the fire sprinkler system to activate. There is substantial fire and water damage to your building.
- Contents: A pipe in your office bathroom bursts and floods your building. All of your office furniture and computer equipment are damaged by the water.
- Property of Others: An electrical fire breaks out in your office and damages the large-format printer your borrowed from a neighboring business.
- A Business Owner’s Policy (BOP) is a bundling of the major property and liability coverages that are commonly purchased by small businesses. BOPs usually combine general liability, property insurance, and business income insurance into one convenient policy. For small businesses, this may be a way to save money, as generally it is cheaper to buy a BOP than the individual coverages separately.
- Workers’ Compensation Insurance is a form of liability insurance that provides funds for employees who suffer work-related injuries or illnesses. Workers’ comp helps to cover medical expenses and lost wages associated with these injuries. If employees decide to accept these monetary benefits, they agree not to sue your business.
- Example: An employee is moving a desktop computer tower into the storage closet when he throws out his back. He requires medical treatment and is unable to come into work for a few weeks.
- Cyber Liability Insurance covers financial losses from data breaches, hacking, viruses, denial of service attacks, and other similar cyber events. This type of insurance is particularly for debt counselors because of the sensitive and confidential nature of the data you work with.
- Example: Your computer network is hacked and cyber criminals gain access to the social security numbers of all of your clients.
- Employment Practices Liability Insurance protects against lawsuits from your employees involving claims of wrongful treatment, such as discrimination or harassment, and covers any judgments or legal fees associated with these claims.
- Example: An employee sues your firm claiming she was passed over for promotions over her five-year tenure at the company because of her gender.
As with any firm in the financial services sector, providing recommendations and guidance that impact a client’s financial health is going to come with its fair share of risks. It may be an unhappy customer who was unable to reach his financial goals and blames your firm for his losses, or it could be a material error an employee of yours makes on a client file, causing the client to lose thousands of dollars. When it comes to such a sensitive and important topic as consumer debt or personal finances, you must exercise the utmost caution.
Moreover, when it comes to running any business, there are liabilities that you, as a business owner, must prepare for. An employee of yours could be injured on the job, or your office building could be destroyed in a fire. Take care to implement the right safeguards to protect you, your business, and those you employ. For your business, that may mean investing in a comprehensive insurance plan.