What is putting your firm at risk?
As an accountant, CPA or tax preparer, what happens if you miss a filing deadline, or your advice leads to significant financial loss for your client? What if you do everything correctly but your client blames you for a financial loss?
Tax law is more complex than ever before, and clients have become more sensitive to stakeholder demands for precise and comprehensive accounting and tax filings. The government is on the prowl for failures, and industry regulators are ready to add to the misery if their members are determined to have systemic problems. Reporting errors, conflicts of interest, fudged books and failed oversight are all on the minds of audit committees and government officials. Even personal clients have increasingly complicated financial issues. More than ever, you must protect your accounting and tax preparation business from claims you failed in your duties.
It isn’t enough to follow risk management best practices. You must also consider ways to transfer some of your financial loss exposure to an insurer. Let’s look at the most important coverages for your company, including some that might seem ancillary but are increasingly crucial.
- Cybersecurity/cyber liability. Since you store and transmit considerable amounts of personal and financial information online, cyber insurance is critical. It can help pay expenses resulting from a data loss or cybercrime, including the cost to investigate the breach, recover files or pay damages. You can even use it to cover public relations expenses to repair your reputation.
- Employee crime. Because of your day-to-day involvement in finances, your business can be an attractive target for dishonest characters. This type of policy will protect you financially if you have employees and they are involved in (or accused of) theft, embezzlement, forgery, computer fraud or illegal fund transfers.
- Umbrella insurance. As suggested by its name, an umbrella policy extends coverage by picking up where your primary insurance leaves off. Once you hit the limit of your primary policy, your umbrella insurance provides additional compensation. It’s a low-cost way to reduce your losses if you are found liable for a very expensive claim.
- Business income. If you suffer a covered loss that prevents you from conducting business, business income insurance safeguards you from losing income while your business recovers. A covered loss might include a fire in your office, which would fall under your commercial property policy.
Essential Coverages
No accounting firm, CPA or tax preparer should operate without professional liability, general liability or commercial property insurance. And if you have employees, workers’ compensation insurance is worth consideration, even if it isn’t a requirement for your business.
Professional liability
The list of professional errors is vast but includes conflict of interest, missed deadlines, calculation errors and accusations of fraud. Even if you follow every legal requirement and offer sound financial advice, clients may sue you. They may claim you failed to carry out your professional responsibilities, provided the wrong advice or were not clear enough with your recommendations.
The cost of defending yourself against lawsuits and any resulting penalties can be significant. Professional liability insurance, also known as errors and omissions, provides financial protection for your business if you are accused of negligence or error.
If you are sued, this coverage will help with your defense expenses and legal fees, as well as resulting judgments if you are found at fault. Many policies cover the cost of document production and other preparations or investigations for your defense. Of course, if it is determined that your actions were malicious, dishonest, criminal, or illegal, your insurance will not apply.
When it comes time to retire, tail coverage will protect you by extending your last policy to cover any claims filed in between the date your policy expired and the date the claim was filed. This protects you in the case that any errors are discovered past your policy expiration. Tail coverage is also used for events like leaving private practice, disability, or death.
General liability
General liability insurance, also known as commercial general liability, protects you if a third party blames your business for bodily injury, personal injury (such as slander) or damage/loss of personal possessions. The third party can be a client, visitor, or supplier.
Even if you operate from your home, you need this insurance if people come to your home for business, even just to drop off paperwork. Remember, a casual comment about a client or their account can result in a claim if it’s perceived as inappropriate or damaging.
Commercial property
This type of policy protects any physical assets you own that are used for business. These may include office furniture, computers and other technology, and the building itself. If you rent space, the landlord will carry insurance for the building, but you still need insurance to protect your other business assets. If you work from home, your homeowners policy will not cover your business assets, so you’ll need a commercial policy for full protection.
Ask your insurance professional if any additional insurance is needed to cover damage that may result from excluded events common in your part of the country or area. Examples include earthquakes, wildfires, windstorms, flooding, and water or sewer backups.
Workers’ compensation
Some insurance professionals will group general liability, commercial property and business income into one policy called a business owners policy, or BOP. And in some cases, your agent or broker might suggest program policy designed specifically for accounting firms, CPAs or tax preparers. These are often good ways to compile a solid suite of coverages at an affordable price.
If you have employees (not independent contractors, who are responsible for their own insurance), you may need workers’ compensation insurance. Your agent or broker can discuss specific guidelines based on your state laws. Workers’ compensation covers medical care and lost wages resulting from workplace injuries. And lest you think financial professionals could never have such a claim, remember that back issues and carpal tunnel are quite common.
For more information
For more information, please contact Rina Corigliano-Hart, Director of Client Engagement and Outreach, at RHart@OneGroup.com.
This content is for informational purposes only and not for the purpose of providing professional, financial, medical or legal advice. You should contact your licensed professional to obtain advice with respect to any particular issue or problem. Please refer to your policy contract for any specific information or questions on applicability of coverage.
Please note coverage can not be bound or a claim reported without written acknowledgment from a OneGroup Representative.
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