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As an accountant, your clients count on you for expert advice on everything from generally accepted accounting principles to preparing financial statements and mastering the intricacies of the tax code. You and your firm play a key role in helping individuals and businesses build their financial futures.
Having the right insurance coverage for your accounting firm can provide peace of mind that your firm will be covered from the financial repercussions of lawsuits against you or your firm so that you can stay focused on delivering the highest level of services to your clientele. Even though you may not expect it to happen, disgruntled clients could sue you over accounting work you’ve done in the past that they’re unhappy with. Fires or leaks could damage your business property. With the electronic and digital nature of modern business, hackers could access confidential client information.
A host of other issues could potentially bring catastrophic financial losses to your firm. Ensuring that you’ve purchased the right insurance coverage for your accounting firm can provide protection for your business finances in the event you are sued.
You may be interested in purchasing insurance for your accounting business if:
- You are an accountant and would like to insure your services and practice against claims of poor performance or errors in your work
- You store sensitive customer or employee data, like financial statements or tax documents
- You employ others
- You provide benefits to your employees, like health insurance or a 401(k)
- You work in an office that you lease or own and store valuable equipment or property in that office
What insurance coverage do I need for my accounting practice?
Some of the most common coverages for accounting firms are listed below, along with examples of incidents that would trigger these coverages.
Professional Liability Insurance
Professional Liability Insurance, also known as Errors & Omissions Insurance, protects your accounting firm against allegations of mistakes or poor quality work by an unhappy client. If work you’ve done or advice you’ve given to a client in the course of your business as an accountant causes a client to lose money, they may sue you or your firm for damages.
- Errors: Your accounting firm completes a tax return for a client. The IRS audits the client’s tax return and finds that some of the figures in the return aren’t correct, and the client must pay a tax penalty. The client sues your firm, claiming that you should have caught the incorrect numbers before filing the return.
- Lawsuits without merit: A client engages your firm to review their financial statements and make recommendations. Your firm completes the engagement and produces a report for the client. The client fails to implement the recommendations in the report, which causes them to experience financial losses. Even though they did not follow your recommendation, the client is angry because they feel you did not effectively explain the situation to them. They sue your accounting firm for damages.
Commercial General Liability Insurance
Commercial General Liability Insurance protects your business if you physically injure another person or cause damage to someone else’s property. While generally not required by law, general liability insurance is widely considered essential to running any type of business. If you are renting office space, in particular, general liability insurance may be a requirement of your lease.
- Property Damage: During a client visit, one of your employees knocks over an expensive piece of artwork. The client sues your company for the cost to repair the artwork.
- Bodily Injury: A client visits your office to go over some financial statements. While in your office, the client trips over some loose carpeting and inures his ankle, requiring medical treatment. The client sues your firm for medical expenses and lost wages from being unable to work.
- Personal and Advertising Injury: Your firm mistakenly publishes a piece of libelous information about a competing accounting firm on social media. The competitor sues your firm for damage to their firm’s reputation.
Commercial Property Insurance
Commercial Property Insurance provides protection for property that your business owns or is responsible for.
- Buildings: Your accounting firm owns the building it occupies. During heavy rainfall, a leak springs in your roof, causing significant water damage to your building.
- Contents: The water getting into your building from the leaky roof also ends up damaging valuable electronic equipment, including computers and printers.
- Business Owner’s Policy combines the major property and liability risks that solo or small accounting firms face in one convenient package.
- Workers’ Compensation Insurance provides funds for medical expenses and lost wages if one of your employees is injured or killed while on the job. In almost all states, workers’ compensation insurance is required for companies that have employees.
- Example: One of your employees accidentally slips on some wet flooring in the break room of your office. He injures his back in the fall and is unable to work while undergoing medical treatment and physical therapy. Workers’ compensation insurance would provide coverage for the employee’s medical bills, rehabilitation expenses, and a portion of his lost income while he is unable to work.
- Data Breach Insurance, also known as Cyber Liability Insurance, protects your accounting firm from financial losses that result from data breaches, hacking, viruses, denial of service attacks, and other similar cyber events.
- Example: The network at your accounting firm is hacked, and sensitive customer data is stolen, including social security numbers and financial account information. Your clients sue you for negligence in failing to protect customer data.
- Employment Practices Liability Insurance, also known as EPL insurance or EPLI, protects against lawsuits filed by employees against your company. Specifically, EPL insurance protects against suits involving claims of wrongful treatment, such as discrimination or harassment, and covers any judgments or legal fees associated with these claims.
- Example: A female accountant in your firm is fired for not completing her work to your satisfaction. She sues your company, saying you unfairly prioritize male accountants at the firm and fired her based on her gender
During the course of business, any business owner and service provider is bound to incur some financial loss due to a mistake or error. However, with a highly specialized profession such as accounting, which allows access to very sensitive and highly confidential information, the consequences of such an error increase exponentially. A mistake could mean financial losses for a customer and, in turn, a lawsuit that may be financially crippling for your own business. Moreover, the same everyday risks that a business faces, like natural disasters or accidents, are still a real threat.
If you are an accountant or own an accounting firm, taking preventative measures to plan ahead for eventual pitfalls could be crucial to your survival. With the right insurance coverage, you can not only protect your business and financial livelihood, but you can also provide safety and security for those under your employ.