I'm Insured — So Why Would I Need a Bond?

This one causes real trouble, because both products look like “insurance the client asked me to have” and both show up as a line item. They are not substitutes.

Errors & omissions covers MISTAKES. You gave advice that turned out to be wrong, missed a deadline, prepared something incorrectly. There was no dishonesty — you did the work and the work was faulty. The policy defends you and pays what you become legally obliged to pay.

A bond covers something else entirely. A fidelity bond responds to DISHONESTY — theft or fraud, typically by an employee. A surety bond is not really insurance at all: it is a guarantee to a third party, often a court or a licensing authority, that you will perform an obligation. If it pays out, the surety generally expects to be reimbursed by you.

So the failure mode is the giveaway. If the complaint is “you did this badly”, that is E&O. If it is “someone took money”, that is a bond. A professional sued for negligent advice will find a bond does nothing for them; a firm whose bookkeeper emptied an account will find E&O does nothing either.

Plenty of professionals genuinely need both — daily money managers, fiduciaries, guardians and anyone appointed by a court frequently do, because they are simultaneously giving advice and handling other people's money. If a client contract or a court order specifies a bond, an E&O policy will not satisfy it no matter how large the limit.

If you are being asked for one and are not sure which, send the requirement to your broker. The wording of the request almost always makes it obvious which product is meant.