Texas Real Estate Brokerage Sales Apprentice Education (SAE) Practice Exam

Which of the following best describes the term "errors and omissions insurance"?

1. Insurance for workplace accidents

2. Insurance that protects against lawsuits for inadequate work

3. Insurance for property damage during showings

4. Insurance for personal liability

The correct answer is: Insurance that protects against lawsuits for inadequate work

The term "errors and omissions insurance" specifically relates to a type of professional liability insurance that protects professionals, including real estate agents, against claims made by clients for inadequate work or negligent actions. This insurance is particularly crucial in the real estate industry, where professionals can face lawsuits for a wide variety of reasons, such as failing to disclose important property information, providing inaccurate advice, or other forms of neglect that lead to financial losses for clients. This coverage ensures that if a client believes they have suffered damages due to the actions (or inactions) of a real estate professional, they can pursue a claim without imposing undue financial hardship on the agent. The insurance can cover legal costs, settlements, and judgments, making it a vital safeguard for anyone in a fiduciary position. In contrast, the other options focus on different types of insurance that do not specifically align with the functions of errors and omissions insurance. For example, workplace accident insurance deals with injuries occurring in the workplace, while insurance for property damage during showings would cover physical damage to properties, which is not the essence of errors and omissions coverage. Personal liability insurance protects individuals from personal legal responsibility for injuries or damages unrelated to their professional duties.