What is accounting insurance?
Working with sensitive financial information comes with plenty of exposures. It is an irony that professionals who help minimize financial risks are prone to them. It does not matter even if you are best at your job or have years of experience; mistakes can happen.
For instance, a missed deadline or an undiscovered fraud can raise serious legal issues for your business. In 2017, Macon-based accounting firm Davidson Collins LLC was held liable for $1.35 million for accounting errors as per Insurance Business America. Business insurance for accountants help to protect against these risks and uncertainties.
Why is accounting insurance necessary?
Managing wealth is not an easy task; especially when it’s someone else’s. As a result, your clients can lose millions due to a small mistake you make. Moreover, you could land in a hefty lawsuit if the clients decide to sue you.
Whether you are an independent accountant or own an accounting firm, it is a smart choice to get accounting insurance. Accountants insurance provides coverage for risks such as:
- Negligence or potential claims
- Data breach and data leak
- Property damage
- Employee related claims
- Failure to detect financial irregularities
Who needs accounting insurance?
Accounting insurance, also called bookkeeping insurance, or CPA insurance is tailored to protect the unique risks faced by these professionals:
- Independent Accountants
- Accounting Firms
- Certified Public Accountants (CPAs)
- Tax Preparers
- Enrolled agents
What insurance do accountants need?
Accountants Professional Liability Insurance:
- Actual or alleged errors/mistake
- Professional negligence or claims of negligence
- Breach of duty
Moreover, the cost of a liability suit ranges from $54000 to $91000 or more for a contract dispute as per an article by Azcentral. Professional liability insurance covers any legal fees, defense costs, and settlements for lawsuits arising from professional mistakes.
Commercial General Liability Insurance:
The commercial general liability insurance protects your business from third-party claims damage. General liability insurance covers:
- Bodily injury: This policy covers any third-party bodily injury costs like medical expenses and legal fees (in case of a lawsuit).
- Property damage: General liability insurance covers any costs to third-party’s property made by you or your business.
- Personal injury: This policy also covers personal injury such as slander or libel.
Commercial Property Insurance:
If your business own assets, you should include commercial property insurance. It covers the building or office space and personal property, including computers, furniture, equipment in the event of fire, vandalism, or other uncertainties.
Commercial Auto Insurance:
If your business has a business auto, you should buy this policy. Commercial auto insurance provides coverage for damages in case of an accident. The coverage includes property and medical expenses.
Business Interruption Insurance:
Temporary closure due to property damage or any unforeseen events can disrupt your business operation. As a result, business interruption insurance provides coverage when your income is interrupted because your business can’t operate.
Business Owners Policy:
A business owners policy is a combination of commercial general liability, commercial property insurance, and business income insurance. The coverages of this combined policy include:
- Third-party liability coverage
- Property coverage
- Business interruption coverage
Cyber Liability Insurance:
Your accounting business might store sensitive data like financial statements, credit card numbers, social security numbers, and other information. According to Statista, the average cost to organizations in case of a data breach in 2019 is $8.19 million. For instance, companies like Walgreen Co., Moss Adams LLP, and AFTRA Retirement Fund have reported to the State of California Department of Justice for a data breach.
In case of any data breach, cyber liability insurance covers losses from data breaches and cyber-attacks. That includes the cost of communication to clients, data restoration, legal fees, and third-party damages.
Workers Compensation Insurance:
Workers compensation insurance provides benefits to employees in case of a work-related injury. According to the Annual Statistical Supplement 2017 of Social Security Administration, workers’ compensation is compulsory for private employment, except Texas. Its benefits include:
- Medical bills
- Lost wages
- Funeral costs
- Legal fees in case the employee’s family sues
Employment Practices Liability Insurance:
Employment practices liability insurance protects accounting firms from employee-related claims such as harassment, discrimination, and wrongful termination. According to an article by the Society for Human Resource Management, the average cost of settling and defending employment law cases is $160,000. Hence, this policy is of great importance once your business starts growing and adding more employees.
Fiduciary Liability Insurance:
Accountants often have a fiduciary duty to their client as an investment advisor, trustee, attorney, and personal representative of an estate. As a result, any bad advice you give can expose your clients to many expensive exposures. For instance, former NBA star Kevin Garnett sued accountant Michael Wertheim and his firm Welenken CPAs for breach of fiduciary duty, malpractice, aiding and abetting. According to Louisville Business First, the player alleges he suffered a financial loss of $77 million because of the firm.
Professional liability insurance might limit or exclude coverages related to fiduciary duty. In case you have the responsibility of fiduciary to your clients, fiduciary insurance will protect you against lawsuits.
Commercial Umbrella Insurance:
The commercial umbrella insurance adds an extension on coverages of other liability policies. In some cases, third-party lawsuits can cost millions, which is over the limit of general liability insurance. Hence, a commercial umbrella and excess policy extend coverage in such events.
Keep in mind that this policy does not extend professional liability coverage.
Valuable Papers Coverage:
Accounting firms need to keep tons of records and important papers like bank statements, tax records, and financial documents. Hence, purchasing valuable papers coverage as an endorsement to your BOP covers the costs of the materials in the case, they are damaged.
How much does accounting insurance cost?
Insurance carriers will look into many things to consider a cost for accountant insurance. Hence, the price of accounting insurance is determined by: