CPA insurance for accountants generally refers to the common types of insurance needed by bookkeepers, accountants, and certified public accountants (CPAs). The primary type of insurance accountants need is professional liability insurance, which covers claims arising from negligence or mistakes in delivering accounting services to clients. CPA insurance for accountants averages $500 to $1,000 per year in premiums.
How Bookkeeper, Accountant and CPA Insurance Works
When accounting professionals buy insurance coverage, it is most often professional liability insurance, which a type of errors and omissions (E&O) insurance. This is because the greatest risk exposure to bookkeepers, accountants and CPAs is making errors in records and in the reporting of their clients’ financial information.
Some accounting professionals that are small business owners can benefit from a business owners policy (BOP), which is a bundled package of multiple insurance types, starting with commercial general liability and commercial property insurance. Some insurance providers allow for certain additional coverage to be added to the BOP. Your provider can specify which coverage types you can include in this bundled policy.
Types of CPA Insurance for Accountants
|Injuries or damages due to your mistakes, negligence or failure to fulfill contractual obligations; can be included in a BOP|
|Third-party claims for bodily injury, property damage, medical payments and personal and advertising injury; typically included in a BOP|
|Work-related injuries, medical bills, wage replacement and more for your employees; required in most states; not included in a BOP|
|Assets owned by the business like the building, equipment or inventory; typically included in a BOP|
|Losses resulting from cyber attacks or data breaches; can be included in a BOP|
|Employment-related issues, such as wrongful termination, discrimination and sexual harassment; not included in a BOP|
|Extended coverage on other insurance types; not included in a BOP|
Independent bookkeepers working out of a home office would only need professional liability or E&O insurance. Most other accounting professionals need both professional liability and general liability insurance. For CPA firms working out of an office, commercial property insurance is also needed, especially if you own the building.
Other insurance types are needed as risk exposures increase. For example, workers’ compensation is needed if you have employees. Cyber liability insurance is generally needed if general liability is not sufficient to cover specific risks, such as a CPA firm that stores clients’ personally identifiable information.
Costs of CPA Insurance for Accountants by Type
Insurance costs for bookkeepers, accountants and CPAs average $500 to $1,000 per year. Your total cost will vary depending upon several variables. For example, independent bookkeepers that need only professional liability insurance may pay less than $500 per year in premium whereas a CPA practice could pay $1,000 or more per year.
Bookkeeper, Accountant and CPA Insurance Providers
When looking for small business insurance, it’s wise to seek providers that have knowledge of your industry and experience working with businesses like yours. Not every insurance company offers insurance products specialized for the financial services industry, specifically with experience in insuring bookkeepers, accountants and CPAs.
We’ve researched five insurance providers that offer accountant insurance to small businesses:
The Hartford is a large insurance provider with a history of offering a wide variety of insurance products to small business owners. It is highly rated for its quality of service and specialized coverage types, including CPA insurance for accountants.
For accountant insurance, The Hartford offers a BOP, which can be a cost-effective means of bundling coverage types into one policy. Multiple coverage types can be added to customize the coverage.
Hiscox receives an “A” rating from A.M. Best — a New Jersey-based rating agency — and its tailored coverage and passion for service, including an easy-to-use website, makes it a popular choice in the small business community.
Its primary lines of accountant insurance include professional liability insurance, general liability insurance and the bundled package BOP that is specialized for small business owners.
Trusted Choice offers insurance products specialized for accountants by working with multiple carriers. Its primary line of insurance for accounting professionals is professional liability insurance. Some of its specialized lines include computer and media coverage, cyber liability insurance and valuable papers coverage.
Trusted Choice can be a good option for accounting professionals looking for specialized lines of insurance offered through multiple carriers.
Travelers is another large insurance provider that offers a wide variety of small business insurance coverage types with specialty products for accounting professionals. Its policies are right for bookkeepers, enrolled agents and tax preparers. Travelers targets these insurance needs to small businesses.
As part of your coverage, Travelers provides risk management services to assist in minimizing accounting liability exposures, including a risk management helpline that provides legal consultation.
The AICPA is the largest writer of accountant insurance in the United States and is obtained through the AICPA membership program. Members can find the right coverage at competitive pricing. However, the AICPA policy may not necessarily be the best one for you. Be sure that you compare coverage and pricing with at least three different providers before making your final decision.
AICPA is best for their members who want to get specialized coverage at a discount. It’s important to still get at least three quotes before ruling out conventional insurance providers.
How to Apply for Bookkeeper, Accountant and CPA Insurance
When bookkeepers, accountants and CPAs apply for insurance, the process of getting the right coverage at the right price is fundamentally the same for most accounting businesses. For example, although an independent bookkeeper with no employees has simpler insurance needs than a CPA firm, the most common insurance types are similar.
No matter what type of accounting business you operate, there are three primary steps in applying for bookkeeper, accountant and CPA insurance:
1. Gather Information About Your Practice
Applying for bookkeeping insurance should be one of the first things you do when starting an accounting business. Having the necessary information cuts down on your application time and provides for accurate quotes as you shop for the best accounting insurance policy.
Information and documents needed to apply for accounting insurance include:
- Business contact information, such as address and tax ID, if applicable
- Gross annual revenue for the last fiscal year
- Number of employees
- Number of years you’ve worked in the accounting business
- Number of years your accounting practice (business entity) has been in existence
- Number and nature of the client data you store and how you store it
- Details of any other insurance you currently have
- Claims history (at least the past three years)
- Insurance requirements like licensing and bonding
Be sure the information you provide is accurate and up to date. This helps your insurance agent or broker recommend the appropriate insurance coverage.
2. Get Quotes From Providers With Specialized Insurance for Accountants
Although small business insurance is relatively standardized across the insurance industry, each profession has unique insurance needs that must be met. Most insurance providers offer the common types of small business insurance, such as general liability, property insurance and workers’ compensation.
However, not all insurance companies offer specialized types of insurance. For example, be sure the provider you choose offers professional liability insurance, which is also called E&O insurance. If you store personally identifiable information (PII) for your clients electronically, be sure to ask about cyber liability insurance.
3. Choose a Provider and Complete the Application
After getting quotes from at least three different insurance companies, you are ready to choose the best provider and finalize the application process. This step can be the most important because leaving out information can lead to negative consequences, such as being under-insured. In some cases, whether it is intentional or not, dishonest information on an insurance application can lead to claims being rejected or to fraud.
Common Types of Accountant Insurance
Depending upon the type and size of your accounting business, you may be able to protect your primary risks with CPA professional liability insurance. However, many bookkeepers, accountants and CPAs need other coverage, especially if they have office space and employees. In this case, general liability, property insurance and workers’ compensation may also be necessary.
There are three common types of accountant insurance, including:
1. Professional Liability Insurance
Also called E&O insurance or CPA professional liability, this insurance covers legal costs and damages resulting from your mistakes or the failure to perform your professional accounting services. This is important coverage for bookkeepers, accountants and CPAs because even small mistakes in financial record keeping can turn into the largest lawsuits.
For example, imagine a situation where your client fails to report income on a 1040 tax form that you prepared, and then they are audited by the IRS. Your client now owes back taxes and severe penalties but blames you for the error. Although the client is ultimately to blame, you still need to defend yourself. Professional liability insurance helps cover your legal costs.
According to CPA Crystalynn Shelton, Staff Writer, Fit Small Business:
“Common mistakes made by accountants are usually in preparing tax returns. For example, transposition of numbers from a W2 or 1099 form to the tax return happens often. Also, misspelling of a client’s name or entering the wrong Social Security number can not only delay the processing of a tax return but can also sometimes trigger an audit. While these errors are unintentional, the IRS can assess interest and penalties if it results in an underpayment of taxes.”
2. Commercial General Liability
Commercial general liability (CGL) insurance covers third-party bodily injury, property damage and related legal costs. Accounting professionals who need CGL coverage are those who own or lease office space that is open to the public. Accidents leading to injuries or property damage to third parties, such as your clients, are a significant risk exposure to these small business owners.
For example, if a client came to your accounting firm for a consultation and was injured after slipping and falling in your lobby, CGL insurance would help pay the medical bills and related legal costs, if a lawsuit ensued.
3. Workers’ Compensation
For accounting professionals who are business owners with employees, workers’ compensation is required coverage. The cost of coverage depends primarily on the number of employees working for you and the state where you work. Although the cost of workers’ comp varies by state, rates will be at least $1 to $2 per $100 in payroll for annual premiums.
Workers’ compensation insurance provides benefits to your employees in the event of work-related injuries or illnesses. Coverage includes medical bills, wages from lost work time and more. If you have employees, most states will require workers’ compensation coverage.
Other Types of Accountant Insurance You May Need
Some small business accounting professionals are able to cover their greatest risk exposures with professional liability insurance, also known as E&O insurance. However, many bookkeepers, accountants and CPAs need some form of insurance in addition to E&O coverage.
There are up to five other types of accountant insurance you may need:
1. Cyber Liability Insurance
Cyber liability insurance covers losses resulting from cyber attacks or data breaches. Coverage protects against data loss and restoration, extortion, legal fees and more. Since accounting businesses typically store PII digitally on computer databases, it is wise to buy this increasingly important insurance protection.
Cyber liability offers protection on a first-party and third-party basis. For example, if you experienced a massive data breach of client data, cyber liability would cover your cost of business interruption and legal fees as well as credit monitoring for your clients.
Although many accountants focus on E&O coverage, they often overlook cyber liability insurance, according to Kevin Drews, Director of Professions Brokerage at Insureon:
“Another type of coverage to consider is cyber liability insurance. Industry regulations require that you keep a record of any company audits you perform for seven years. If you are like many accountants, there’s a good chance that you store those records digitally, which means you are vulnerable to a data hack. Accountants can typically purchase cyber coverage either as a standalone policy or as an add-on to a BOP.”
2. Business Interruption Insurance
Business interruption insurance, also called business income insurance, covers your accounting business if you experience a loss of income due to a cease in operations because of a covered event. For example, if a fire or a burst pipe caused damage to your building to the degree you had to close your accounting practice for several days, business interruption insurance would help cover the financial loss.
3. Commercial Property
Another insurance type that may be needed for your accounting business is commercial property insurance, which protects the assets of your business, such as your building and the contents within it. Risk exposures covered by commercial property insurance include fire, theft, vandalism and extreme weather.
For example, bookkeepers, accountants and CPAs with office space and valuable contents like computers and furniture would face a significant financial setback if their building was damaged or destroyed by fire. Commercial property insurance helps to cover the cost of repairing and replacing the building and contents. For those accounting professionals working at home, be aware that your home insurance may not cover your business assets.
4. Employment Practices Liability Insurance
Employment practices liability, or EPLI insurance, protects your accounting business from employment-related claims, such as wrongful termination, discrimination and sexual harassment. Accounting business owners who hire employees may need this coverage, especially for larger practices with multiple employees and high turnover.
For example, discrimination and sexual harassment are significant risk exposures for businesses with employees. While it is always advisable for larger firms to implement proactive policies, such as anti-discrimination and specific hiring and firing policies, these are no guarantee against an EPLI claim.
5. Commercial Umbrella Insurance
Commercial umbrella insurance is not a specific insurance type but it serves as an extension of coverage on your other insurance policies. Since third-party liability claims, such as those covered under professional liability insurance, can lead to multimillion-dollar lawsuits, extending coverage with commercial umbrella insurance can be a good idea for some accounting firms.
An example where commercial umbrella would be needed is with an expensive lawsuit. If your accounting practice is sued by a client for an error or omission and the legal fees and settlement costs are $1.5 million, you’d need extra coverage if your E&O limit was $1 million. Umbrella insurance would cover the additional $500,000 expense.
The Bottom Line
A costly lawsuit arising from mistakes is the greatest financial risk for bookkeepers, accountants and CPAs. Therefore, most professionals working in the accounting industry need professional liability insurance, which is also called E&O insurance. Finding adequate insurance is a critical part of starting a bookkeeping or accounting business. The best provider for you will depend on its ability to cover these unique risks.