Accounting Insurance Policy Information
Accounting Insurance. Accounting insurance is a type of financial coverage that provides protection to businesses and individuals who work in the accounting industry. With the increasing complexity of financial regulations and the growing number of lawsuits, accounting insurance has become a crucial aspect of running a successful accounting practice.
This insurance provides peace of mind to accountants and protects them against potential financial losses due to errors, omissions, and other risks that they face while providing accounting services. In this article, we will take a closer look at what accounting insurance is, why it's important, how much its costs and what coverage options are available.
Whether you're a seasoned accountant or just starting out, understanding the importance of accounting insurance is essential for ensuring the financial stability and success of your business.
Accountants handle clients' financial records. Services are provided to the general public, a specific firm, or group of client firms. The accounting operation may provide general financial services, or specialize in a specific area such as taxes, real estate, or investments.
An accounting firm may or may not carry the Certified Public Accountant (CPA) certification. The need for the CPA certification depends on the type of work the accountant will provide and the purpose or type of financial statements the accountant will prepare for the client.
If a CPA certification is required, the accountant must have knowledge and experience in working with generally accepted accounting principles (GAAP) or statutory accounting principles (SAP), depending on the client.
Some accountants may also act as financial planners and offer investment advice. Due to the varied areas of knowledge or expertise needed for these activities, the background, education, certification, experience and professionalism are items to consider.
Accounting insurance protects your firm from lawsuits with rates as low as $27/mo. Get a fast quote and your certificate of insurance now.
Below are some answers to commonly asked accounting insurance questions:
- What Is Accounting Insurance?
- How Much Does Accounting Insurance Cost?
- Why Do Accountants Need Insurance?
- What Type Of Insurance Do Accountants Need?
- What Are Accounting Risks & Exposures?
- What Does Accounting Insurance Cover & Pay For?
What Is Accounting Insurance?
Accounting insurance, also known as professional liability insurance or errors and omissions insurance, is a type of insurance that provides financial protection for professionals in the accounting industry against claims of negligence, errors, or omissions in the performance of their professional duties.
This insurance can cover a variety of potential claims, including those related to financial statement preparation, tax preparation, and auditing. It is intended to protect the professional and their business from financial loss in the event of a lawsuit or settlement arising from a mistake or oversight in their professional services.
How Much Does Accounting Insurance Cost?
The average price of a standard $1,000,000/$2,000,000 General Liability Insurance policy for small accounting firms ranges from $27 to $59 per month based on location, services offered, payroll, sales and experience.
Why Do Accountants Need Insurance?
Accountants are professionals who handle and manage financial information for individuals and businesses. They are responsible for ensuring that financial records are accurate, up-to-date, and compliant with relevant laws and regulations.
While they may not face the same physical risks as other professionals, such as doctors or construction workers, accountants still need insurance to protect themselves and their clients from potential financial losses.
There are several reasons why accountants may need insurance.
First and foremost, insurance can provide financial protection in the event that an accountant is sued for professional negligence or errors and omissions. Accountants are expected to provide accurate and reliable financial advice and services, and if they fail to do so, they may be held legally responsible. Insurance can cover the cost of legal fees and any settlements or damages that may be awarded.
Insurance can also protect accountants from other risks, such as theft or damage to their office or equipment. Accountants often handle sensitive financial information and documents, and insurance can help cover the cost of recovering from a data breach or loss of important documents.
In addition, insurance can provide peace of mind and a sense of security for accountants. The accounting profession can be stressful, and knowing that they have insurance to fall back on can help accountants feel more secure in their work.
Overall, insurance is an important tool for accountants to protect themselves and their business from a variety of risks and liabilities.
What Type Of Insurance Do Accountants Need?
Although a accounting insurance policy is a good place to start when considering CPA business owner's policies for your small business, there are other optional accountant insurance coverage types to consider. Work with your insurance agent to determine the suitability of these common policies for your business.
Small business insurance for accountants is an important consideration for those working in this field. Accountants often have access to sensitive financial information and are responsible for handling large sums of money on behalf of their clients. This makes them vulnerable to claims of negligence, fraud, or errors and omissions.
There are several types of insurance that accountants should consider:
Professional liability Accountants generally need professional liability insurance, also known as errors and omissions insurance, to protect themselves against claims of professional negligence. This type of insurance covers accountants for damages or losses that may occur as a result of their professional services.
Another important type of insurance is cyber liability insurance. This covers claims related to data breaches or cyber attacks. As accountants handle sensitive financial information, they are at risk of cyber attacks that could result in the theft of client data or the loss of confidential information.
Business interruption insurance is also important for accountants. This covers the loss of income due to unexpected events such as natural disasters or power outages. If an accountant's business is unable to operate due to unforeseen circumstances, this insurance can help to offset the financial loss.
In addition to these types of insurance, accountants should also consider general liability insurance. This covers claims of bodily injury or property damage that occur on the accountant's premises or as a result of the accountant's business operations.
Overall, small business insurance for accountants is essential to protect against potential claims and financial losses. By carefully considering their insurance needs, accountants can ensure that their business is protected and can continue to operate smoothly.
Your commercial insurance broker might also recommend some or all of the following coverages and policies to you:
- Data breach coverage. In today's digital age, data breaches are oftentimes in the news, and perhaps you think you're too small to become a target of information thieves. The truth is that no one is safe from this type of cybercrime, so a data breach policy protects you from the liability claims if the data you store in your files is compromised.
- Valuable papers and records coverage. As a CPA, you store valuable paperwork for clients, including ledgers, bank statements, financial statements, and more. Cover these items with valuable papers and records coverage to avoid the loss incurred when damage from fire, water, and other perils comes into play.
In addition to these industry specific coverage types, you may need other types of insurance for your accounting business that are not mentioned above. For instance, worker's compensation insurance provides insurance for employees when they become injured on the job.
Commercial auto insurance provides insurance for any company vehicles used in the course of going to client job locations or meetings.
If you are running your CPA business from your home, then home-based solutions for your accounting business insurance can protect you from personal loss. In some cases, a business owner's policy is all that you need to fully protect your business, but a more extensive policy may also be recommended.
Some home business owners rely solely on their homeowner's policies to protect them while doing business, which can be a foolhardy choice, since most homeowner's policies specifically state that they don't cover such activities. Work with an agent to determine if your home accounting business needs a business owner's policy or additional coverage types to be fully protected.
Whatever your situation, choosing an accounting insurance policy that meets your needs is a move in the right direction. Work with a licensed agent with experience in business insurance to find the right level of protection for your specific firm's risks.
What Are Accounting Risks & Exposures
Professional liability exposure is extensive. Working with individual clients presents fewer professional exposures than working with corporate clients. The exposure increases if the firm fails to conduct thorough background checks to verify employees' credentials and education, if clerical workers are allowed to do tasks that only professionals should handle, or if error checking procedures are ignored or are inadequate. Very serious losses may result from failure to document decisions and actions or to secure client approval.
Premises liability exposure is often minimal since most client contact is done electronically or by mail. If clients visit the premises, they must be confined to designated areas so that they cannot view or overhear conversations regarding other clients' confidential information. To prevent slips, trips, or falls, all areas accessible to clients must be well maintained with floor covering in good condition.
The number of exits must be sufficient, and be well marked, with backup lighting in case of power failure. Parking lots and sidewalks need to be in good repair with snow and ice removed, and generally level and free of exposure to slips and falls. Off-premises exposures arise from sales visits, training sessions, and physical audits at the customer's premises. There should be policies and training as to off-site conduct by employees.
Workers compensation exposure is generally limited to that of an office. Because work is done on computers, potential injuries include eyestrain, neck strain, carpal tunnel syndrome, and similar cumulative trauma injuries that can be addressed through ergonomically designed workstations. Some accounting firms have significant off-site work for audits, training and similar activities. Workers can be injured by slips and falls at clients' premises or in automobile accidents.
Property exposure is generally limited to that of an office, although there may be some incidental storage or an area for meetings. Ignition sources include electrical wiring, heating and air conditioning systems, wear, and overheating of equipment. Computers and other electronic equipment may be targets for theft.
Crime exposure comes from employee dishonesty, which can be quite serious as accountants and their staff have access to clients' financial information such as bank records and investment accounts. Potential for theft, directly or by means of identity theft, is great. Hazards increase without proper background checks, along with monitoring procedures and securing of all records to prevent unauthorized access.
All job duties, such as ordering, billing and disbursing should be separate and reconciled on a regular basis. Receipts should be issued for any cash payments received. Bank deposits should be made on a timely basis to limit the buildup of cash on premises. Audits should be performed at least annually.
Inland marine exposures are from accounts receivable if the firm offers credit, computers and valuable papers and records for customers' information, which may be originals that are difficult to re-create. Power failure and power surges are potentially severe hazards. A morale hazard may be indicated if the insured does not keep valuable papers and disks in fireproof file cabinets to protect them from smoke, water and fire. Duplicates should be kept off site to allow for re-creation in the event of a loss.
Business auto exposure is generally limited to hired and non-owned. If vehicles are provided to employees, there should be written procedures regarding personal use by employees and their family members. All drivers must have appropriate licenses and acceptable MVRs. Vehicles must be maintained and records kept in a central location.
What Does Accounting Insurance Cover & Pay For?
There are many reasons why accounts might be sued, and insurance can provide protection in different ways depending on the specific circumstances of the lawsuit. Here are some common examples:
- Allegations of professional negligence: Accountants can be sued for errors or omissions in their work that result in financial losses for their clients. This type of lawsuit is often referred to as professional negligence, and it can be costly to defend against. Professional liability insurance, also known as errors and omissions (E&:O) insurance, can help cover the costs of defending against such claims and any resulting damages.
- Breach of contract: Accountants may be sued for breaching the terms of a contract with a client. This can happen if the accountant fails to provide the agreed-upon services or if they make mistakes that lead to financial losses for the client. In this case, a professional liability policy may provide coverage for the costs of defending against the lawsuit and any damages awarded.
- Fraud: Accountants who engage in fraudulent activities, such as embezzlement or falsifying financial records, may face lawsuits from clients or other parties who were harmed by their actions. In such cases, a fidelity bond or crime insurance policy may provide coverage for the damages, including legal costs.
- Data breaches: Accountants often handle sensitive financial information, and if this information is compromised in a data breach, the accountant or their firm may be sued by affected parties. Cyber liability insurance can help cover the costs of defending against lawsuits related to data breaches and any resulting damages.
- Employment disputes: Accountants may face lawsuits from their own employees, such as claims of discrimination or wrongful termination. Employment practices liability insurance (EPLI) can provide coverage for legal defense costs and damages awarded in such cases.
It's important for accountants and accounting firms to carefully review their insurance policies to ensure that they have appropriate coverage for the specific risks they face. Additionally, they should work with an experienced insurance agent or broker to identify any gaps in coverage and to find the right insurance products to meet their needs.
Commercial Insurance And Business Industry Classification
- SIC CODE: 8721 Accounting, Auditing, and Bookkeeping Services, 7291 Tax Return Preparation Services
- NAICS CODE: 541211 Offices of Certified Public Accountants, 541213 Tax Preparation Services, 541214 Payroll Services, 541219 Other Accounting Services
- Suggested Workers Compensation Code(s): 8803 Auditor, Accountant, or Computer System Designer or Programmer - Traveling, 8810 Clerical Office Employees NOC
Description for 8721: Accounting, Auditing, and Bookkeeping Services
Division I: Services | Major Group 87: Engineering, Accounting, Research, Management, And Related Services | Industry Group 872: Accounting, Auditing, And Bookkeeping Services
8721 Accounting, Auditing, and Bookkeeping Services: Establishments primarily engaged in furnishing accounting, bookkeeping, and related auditing services. These establishments may use data processing and tabulating techniques as part of providing their services. However, establishments primarily engaged in providing data processing and tabulating services are classified in Industry 7374. Establishments providing income tax return preparation service without also furnishing accounting, auditing, or bookkeeping services are classified in Industry 7291.
- Accounting service
- Auditing service, accounts
- Bookkeeping and billing service
- Certified public accountants (CPAs)
- Payroll accounting service
- Public accountants certified
Description for 7291: Tax Return Preparation Services
Division I: Services | Major Group 72: Personal Services | Industry Group 729: Miscellaneous Personal Services
7291 Tax Return Preparation Services: Establishments primarily engaged in providing tax return preparation services without also providing accounting, auditing, or bookkeeping services. Establishments engaged in providing income tax return preparation services which also provide accounting, auditing, or bookkeeping services are classified in Industry 8721.
- Income tax return preparation services without accounting, auditing
- Tax return preparation services without accounting, auditing or
Accounting Insurance - The Bottom Line
Speak with an experienced insurance broker to find the best accounting insurance coverage for your practice.
Additional Resources For Professional Services Insurance
Get informed about small business professional services insurance, including Professional liability, aka errors and omissions (E&O insurance), that protects your business against claims that a professional service you provided caused your client financial loss.
- Answering Service
- Armored Car
- Attorney Lawyer
- Background Music Services
- Business Consulting
- Chemical Engineers
- Civil Engineers
- Claims Adjuster
- Commercial Laundries
- Commodity Broker
- Corporate Wellness
- Court Reporter
- Credit Bureaus
- Debt Collection Agency
- Detective Agency
- Diaper Services
- Electrical Engineering
- Environmental Consultant
- Executive, Career & Life Coaching
- Executive Search Firm
- Expert Witness
- Financial Planner
- Financial Services
- Funeral Directors
- HR Consultant
- Inspection Bureaus
- Insurance Agents & Brokers Insurance
- Mediator - Arbitrator
- Medical Billing
- Music, Drama & Dance Therapy
- Office Machine Repair & Maintenance
- Piano Tuners
- Project Management
- Safety Consultants
- Speakers Bureaus
- Tax Preparer
- Temporary Staffing
- Title Abstractors
- Valet Parking
- Specialty Consultants
- Specialty Service Business
The professional services industry, which includes occupations such as lawyers, doctors, accountants, and architects, often deals with sensitive and complex issues that carry a high risk of liability. These professionals are expected to provide their clients with expert advice and guidance, and any mistakes or oversights can result in significant financial consequences for both the client and the professional. This is where insurance comes into play.
Business insurance provides protection against the financial repercussions of potential mistakes or accidents that may occur while providing professional services. For example, a lawyer may make an error in their legal representation that leads to a financial loss for their client. Without insurance, the lawyer would be personally responsible for covering the cost of this loss. Insurance helps to protect professionals from these types of financial burdens and allows them to focus on providing high-quality services to their clients.
In addition to protecting against financial losses, commercial insurance can also provide legal defense for professionals facing legal action as a result of their work. This can be especially important for professionals in high-stress or high-risk fields, such as doctors or architects, who may be at a higher risk of being sued for professional negligence.
Overall, the professional services industry needs insurance to protect against financial losses and legal action, ensuring that professionals can continue to provide high-quality services to their clients without the added stress and burden of potential financial consequences.
Minimum recommended small business insurance coverage: Business Personal Property, Employee Dishonesty, Accounts Receivable, Computers, Valuable Papers and Records, General Liability, Employee Benefits Liability, Professional Liability, Umbrella Liability, Hired and Non-owned Auto Liability & Workers Compensation.
Other commercial insurance policies to consider: Building, Business Income with Extra Expense, Earthquake, Equipment Breakdown, Flood, Computer Fraud, Forgery, Money and Securities, Special Floater, Cyber Liability, Employment-related Practices Liability, Business Auto Liability and Physical Damage and Stop Gap Liability.