Accountant Professional Liability

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What Is Accountant Professional Liability Insurance?

Also known as errors & omissions insurance and accountant indemnity insurance, accountant professional liability is typically the most important insurance policy a CPA (certified public accountant) and any other type of accountant or financial services professional can purchase to protect their firm.

There are innumerable laws and regulations that accounting professionals must keep up with, constantly learning and keeping up with the changing regulatory climate, while also serving their clients as best as possible. The accounting profession is a complex one, and navigating the world of taxes, budgets, and payroll is never easy or simple.

Mistakes will happen while performing these professional services, no matter how careful you are and how much experience you have as a professional accountant.

That’s exactly why professional accountants purchase professional liability insurance. This coverage provides them with the protection from claims and financial risks that is needed in order for professional accountants to confidently perform their services and help their clients.

Who Is It For?

Any and all providers of professional financial services should be interested in purchasing professional liability insurance. Whether you are a CPA, tax advisor, or a bookkeeper, there’s a good chance that you are going to be hit with a claim eventually. The reality of a career in financial services and particularly accounting is that it’s incredibly easy for a client, investor, or even a partner to file suit against you.

No matter the quality of your service, the experience you have, and how well you stick to the scope of your engagement letter, you run the risk of getting hit with an expensive professional liability claim just by being an accountant in today’s increasingly litigious environment.

Even if you are a part-time accountant working from your home office, you are still at risk of being sued by an agitated client at any time, making insurance a priority for anyone working as a professional accountant in any capacity.

Why Do You Need It?

When discussing insurance, one of the most important things to remember is that claims filed against will cost you a significant amount of money even if you win. No matter how frivolous the lawsuit, there are still going to be legal defense costs. Even if you’ve not made any kind of error or professional misstep, you could still get sued, as long as your client is under the impression that you have done something that has resulted in a financial loss to them.

Accountant-client relationships are very delicate and any client relationship that is so intrinsically centered around money can take a turn for the worse very quickly. Simple miscommunications, misconceptions, even a lack of communication can cause an accountant’s relationship with a client relationship to sour and potentially lead to grievances.

There are best practices that accountants can follow in order to protect themselves from lawsuits. They can make sure to put all of their agreements in writing, communicate with clients via email so that written transcriptions exist, and make sure that if they need to make any changes to their plans to get the client’s consent in writing.

But even if you’re as vigilant as possible, clients can sue if they believe that you have not done a good job providing your financial services to them, even if they have nothing to base those claims on.

Having accountant liability insurance gives you financial protection from all liability claims and will pay expensive defense costs whether you win or lose the claim. If you do end up losing the claim or reaching an agreement to settle, insurance will pay those expenses as well.

What Does Professional Liability Insurance Cover for Accountants?

Any type of professional errors made while performing your duties as an accountant should be covered by a good professional liability policy.

Accountant professional liability insurance kicks in to provide protection if a client sues you for negligence or perceived mistakes you have made in your work which they believe have led to financial damage for them.

Any good policy would cover errors and omissions, any acts of perceived professional negligence, breach of duty and contract, misleading information, bad advice, and any other issues with your performance as a professional accountant in the eyes of the client that has filed the claim.

If a professional liability claim is filed, your accountant professional liability insurance will cover all of your defense costs and potential rewards or settlements you might end up having to or choosing to pay.

What’s Not Covered?

A professional liability policy will only cover claims that are directly related to your professional work as an accountant. And while professional liability is probably the most important insurance policy that a CPA should have, it is certainly not the only one.

If you have an office that is visited regularly by clients and partners, then it’s a good idea to purchase commercial general liability as well. General liability protects you in the event that a third-party is injured at your place of work or their property is damaged on your premises.

If you have a large accounting firm that has directors, officers, and board members, it would also be a good idea to purchase directors & officers insurance because typical professional liability policies will not cover claims filed against management.

Any accounting firm that has more than a handful of employees should also consider employment practices liability insurance to protect itself from employee-filed claims of harassment, discrimination, wrongful termination, failure to promote, and more.

What Does It Cost?

There are several important factors that insurers will look at when determining how much an accounting firm will have to pay for CPA insurance. Firstly, the services that the accountant provides are probably the most important. A CPA will generally pay more for insurance than a bookkeeper, for example, since CPAs are certified professionals and therefore clients have greater expectations and professional standards when hiring them.

If your accounting firm is being hired by large corporations to perform audits and handle its taxes, you’re obviously going to pay more for insurance than an accountant that performs bookkeeping services for private citizens would pay. It should also be clear that the larger your firm is and the greater the number of accountants that need to be covered by the policy, the more you’re going to pay.

Simply put, the higher level of risk your professional services entail, the more you are going to pay for accountant professional liability insurance.

Your claims history is another very important aspect that insurers will look at closely. If you have a history of liability claims being filed against you, especially severe claims, you will pay much more for coverage than what an accounting firm of the same size and profile that hasn’t had many claims filed against them over the last several years will have to pay.

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