Insurance for Accountants and Tax Professionals

As an accountant, CPA or tax preparer, what happens if you miss a filing deadline or your advice leads to significant financial loss for your client? What if you do everything correctly but your client blames you for a financial loss?

This is why insurance for accountants and tax professionals is so important.

Your risk has increased. Tax law is more complex, and clients have become more sensitive to stakeholder demands for precise and comprehensive accounting and tax filings. The government is on the prowl for failures, and industry regulators are ready to add to the misery if their members are determined to have systemic problems. Reporting errors, conflicts of interest, fudged books and failed oversight are all on the minds of audit committees and government officials. Even personal clients have increasingly complicated financial issues. More than ever, your accounting and tax preparation business needs to protect itself from claims that you failed in your duties.

Beyond the best in risk-management practices, you need to consider ways to transfer some of your financial loss exposure to an insurer. Let’s take a look at the most important insurance for accountants and tax professionals to have, including some that might seem ancillary but are increasingly crucial.

• Cybersecurity/cyber liability – Since you store and transmit considerable amounts of personal and financial information online, cyber insurance is critical. It can help pay expenses resulting from a data loss or cybercrime, including the cost to investigate the breach, recover files or pay damages. It can even be used to cover important post-incident expenses for public relations to repair your reputation.
• Employee crime – Because of your day-to-day involvement with finances, your business can be an attractive target for dishonest characters. This type of policy will protect you financially if you have employees and they are involved with (or even just accused of) theft, embezzlement, forgery, computer fraud or illegal transfer of funds.
• Umbrella insurance – As suggested by its name, an umbrella policy extends coverage by picking up where your primary insurance leaves off. Once you hit the limit of your primary policy, your umbrella insurance provides additional compensation. It’s a low-cost way to reduce your losses if you are found liable for a very expensive claim.
• Business income – If you suffer a covered loss that prevents you from conducting business, business income kicks in to safeguard you from any lost income that results while your business recovers. A covered loss might include a fire in your office, which would fall under your commercial property policy.

Must-have coverages

No accounting firm, CPA or tax preparer should operate without professional liability, general liability or commercial property insurance. And if you have employees, workers’ compensation insurance is worth consideration, even if it isn’t a requirement for your business.

Professional liability

The list of professional errors is vast but includes conflict of interest, missed deadlines, calculation errors and accusations of fraud, among other claims. Even if you follow every legal requirement and offer sound financial advice, clients may choose to sue you if they believe that you failed to carry out your professional responsibilities, provided the wrong advice or were not clear enough with your recommendations (whether these claims are founded or not).

The cost of defending yourself against lawsuits and any resulting penalties can be significant. Professional liability insurance, also known as errors and omissions (E&O), provides financial protection for your business if you are accused of negligence or error.

If you are sued, this coverage will help with defense expenses and legal fees, as well as resulting judgments if you are found at professional fault. In many policies, the cost of document production and other preparations or investigations for your defense are also covered. Of course, if it is determined that your actions were malicious, dishonest, criminal or illegal, your insurance will not apply.

General liability

This type of insurance, sometimes called commercial general liability, protects you if any third party, such as a client, visitor or supplier, blames your business for their bodily injury, personal injury (such as slander) or damage/loss of personal possessions. Even if you operate from your home, this insurance is necessary if people ever come to your home for business (even just to drop off paperwork). Remember, claims of personal injury can result from a casual comment made about a client or their account that is perceived as inappropriate or damaging.

Commercial property

This type of policy protects any physical assets you own that are used for business, including office furniture and computers or other technology, as well as the building itself. If you rent space, the landlord will carry insurance for the building, but you still need insurance to protect your other business assets. If you work from home, your business assets will not be covered by your homeowners policy, so you’ll still need to get a commercial policy for full protection.

Be sure to ask your insurance professional if any additional insurance is needed to cover damage that may result from excluded events common in your part of the country or area. Examples include earthquakes, wildfires, windstorms, flooding or water/sewer backup.

Workers’ compensation

If you have employees (not independent contractors, who are responsible for their own insurance), you may need workers’ compensation insurance. Your agent or broker can discuss specific guidelines based on your state laws. Workers’ compensation covers medical care and lost wages resulting from a workplace injury or workplace violence. And lest you think financial professionals could never have such a claim, remember that back issues and carpal tunnel are quite common.

Some insurance professionals will group general liability, commercial property and business income into one policy called a business owners policy, or BOP, and in some cases your agent or broker might suggest a program policy designed specifically for accounting firms, CPAs or tax preparers. These are often good ways to compile a solid suite of coverages at an affordable price.