Tennessee Realtor State Practice Exam

Which of the following is true about errors and omissions insurance?

1. It provides coverage for intentional misconduct

2. It covers licensees sued by consumers for inadvertent mistakes

3. It only applies to commercial real estate transactions

4. It is mandatory for all real estate agents

The correct answer is: It covers licensees sued by consumers for inadvertent mistakes

Errors and omissions insurance, also known as professional liability insurance, is specifically designed to protect real estate professionals from claims made by clients due to unintentional mistakes or negligent acts. This type of insurance is crucial in the real estate industry because it helps licensees defend against lawsuits that arise from alleged errors, omissions, or failure to disclose important information during transactions. This coverage is particularly important in a field where the stakes are high, and even minor oversights can lead to significant financial consequences for clients, thus enabling agents to operate with a level of security. The other options do not accurately reflect the purpose or limitations of this insurance. For example, it does not cover intentional misconduct, does not exclusively apply to commercial transactions, and is not universally mandatory for all agents but may be required by some state licensing boards or brokers.