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One of the most critical errors in managing a tax preparation firm is failure to properly insure the business against losses and lawsuits.  

There are a number of reasons why tax preparers might under-insure their businesses.  They may believe that having policies for general liability and errors & omissions is all they require.  They may work out of a home office and believe that their homeowner’s policy covers them.  Or they may simply believe that their company is too small for anyone to bother suing it. 

All of these and many other insurance myths may be the fastest path to financial ruin. 

Insureon, a leading online insurance platform for small businesses and the fastest-growing insurance company in Inc.’s annual “Inc. 500” report for 2014, suggests that there are six types of insurance policy that every tax preparation firm should have.  These are: 

·         General Liability Insurance for Accountants, Tax Preparers, and Finance Professionals.  In the unlikely event that a third party should claim that you or one of your employees caused them physical injury or damaged their property, you could be facing an expensive litigation process. General Liability Insurance can help you manage these claims by paying for your legal defense, including reimbursement fees and lost income compensation.  Many companies and client contracts require that accountants carry General Liability Insurance to reduce their own amount of financial risk. 

·         Professional Liability Insurance/ Errors & Omissions Coverage.  An accounting mistake can cause significant and costly complications for your clients, which may lead to a lawsuit. If this happens, legal costs can increase rapidly. Bookkeeping or accounting malpractice risk is a very important reason why every tax preparer, accountant, and finance professional needs professional liability coverage.  Errors and Omissions Insurance covers you and your tax preparation business if one of your clients claims that your work caused them a financial detriment. Examples may include failing to file a return on time or making technical errors. If a lawsuit begins, you will be spending a good deal of time and money on your legal defense.  Professional Liability Insurance pays for your legal defense, any income lost due to your inability to work, and other specified costs. If you are legally required to compensate for losses, your Professional Liability Insurance will cover that award as well. 

·         Errors and Omissions Insurance policies.  These are generally doled out in allotments of $1 million with deductibles starting at $1,000. Coverage must be in force when any alleged incident occurs and also at the time the claim is filed in order for a covered party to collect benefits. As a result, we advise our clients to keep their policy in force even after an engagement is finished. 

·         Workers’ Compensation Insurance.  You may need Workers’ Compensation Insurance to cover any employees in the event of an injury on the job or suffer a work-related illness. Workers’ Compensation Insurance pays for employees’ medical expenses and accounts for some of their lost wages. As the business owner, you can also cover yourself for any injuries or illnesses sustained on the job.  Even though the risks of on-the-job injuries are typically low for tax preparers, most states mandate some level of Workers’ Comp coverage for your business. Be sure to check your state’s requirements. Some state directives may depend on the number of employees in the business, and in some instances you may even need to include independent contractors in your Workers’ Compensation package. 

·         Property Insurance / Business Owner’s Policy (BOP).  As a finance professional, you have a low probability of facing a dangerous work situation. BOP is a cost-saving, comprehensive policy that consists of a General Liability policy and Property Insurance

·         Umbrella Insurance / Excess Liability Coverage. An Umbrella Insurance policy is an easy way to boost coverage levels to meet client contract demands. Umbrella Insurance adds coverage to your existing General Liability Insurance policy.  For example, if your contract requires $500,000 in General Liability coverage, but your policy limit is $250,000, purchasing Excess Liability or Umbrella coverage will cover the additional amount.

·         Cyber Insurance against data loss and theft.  As tax preparers and their clients increasingly become the targets of identity thieves and hackers, this insurance is either included as part of the Property Insurance policy.  However, the tax preparer should evaluate whether this is sufficient to protect the firm. 

There’s another advantage to having adequate insurance coverage – fraudulent preparers won’t bother because they have no intention of being around long enough to be sued.  Having a strong array of insurance policies, and letting your clients know the depth of your coverage, is another hallmark of a professional.

18 COMMENTS

  1. It is so fun to learn about what types of insurance businesses need. I just started working for a bigger business and it was equally as fun to learn about what insurance they need as well. There are so many different and specific types of insurance that I had never considered. Thanks for sharing.

  2. It is so fun to learn about what types of insurance businesses need. I just started working for a bigger business and it was equally as fun to learn about what insurance they need as well. There are so many different and specific types of insurance that I had never considered. Thanks for sharing.

  3. General liability insurance sounds like it would be really useful for accountants and any one else involved in finance. My husband is actually taking a business finance class right now, and he showed me how one slip-up can ruin an entire case study. It seems like in that case professional liability insurance might have you covered.

  4. General liability insurance sounds like it would be really useful for accountants and any one else involved in finance. My husband is actually taking a business finance class right now, and he showed me how one slip-up can ruin an entire case study. It seems like in that case professional liability insurance might have you covered.

  5. It is interesting to me that business insurance comes in so many different forms. Depending on company and needs you can have completely different insurances. I would like to learn more about narrowing it down for your specific needs.

  6. It is interesting to me that business insurance comes in so many different forms. Depending on company and needs you can have completely different insurances. I would like to learn more about narrowing it down for your specific needs.

  7. I had no idea that there are so many different types of insurance policies. I would have never considered that a tax preparation firm would require Workers’ Compensation insurance. When I think of jobs that may require Workers’ Compensation, I typically think of construction and industrial work. I’ll definitely take your advice and check my state’s requirements on Workers’ Compensation to see if my business requires it.

  8. I had no idea that there are so many different types of insurance policies. I would have never considered that a tax preparation firm would require Workers’ Compensation insurance. When I think of jobs that may require Workers’ Compensation, I typically think of construction and industrial work. I’ll definitely take your advice and check my state’s requirements on Workers’ Compensation to see if my business requires it.

  9. While I agree with you on the fact that it is unlikely that someone is going to press charges against your company, it is still possible that it could happen. That is when having commercial insurance comes into play. If you have this you will save tons of money whether you win or lose the case. That is why when I own a business I will have this type of insurance.

  10. While I agree with you on the fact that it is unlikely that someone is going to press charges against your company, it is still possible that it could happen. That is when having commercial insurance comes into play. If you have this you will save tons of money whether you win or lose the case. That is why when I own a business I will have this type of insurance.

  11. It’s true that not only will insurance protect you against any mishaps or unfortunate circumstances, but it will also set your business apart as a solid one. It’s a good sign for prospective clients. Also, cyber insurance is very important and you should definitely make sure that it’s more than adequately covered in your Property Insurance. That’s definitely something you don’t want lacking.

  12. It’s true that not only will insurance protect you against any mishaps or unfortunate circumstances, but it will also set your business apart as a solid one. It’s a good sign for prospective clients. Also, cyber insurance is very important and you should definitely make sure that it’s more than adequately covered in your Property Insurance. That’s definitely something you don’t want lacking.

  13. My brother in law and cousin are starting up a business and have a lot of planned out. They are almost done, but haven’t figured out the business insurance part of it. I’ll have to show them this and see if it can help them out.

  14. My brother in law and cousin are starting up a business and have a lot of planned out. They are almost done, but haven’t figured out the business insurance part of it. I’ll have to show them this and see if it can help them out.

  15. Thanks so much for this post! I hadn’t even considered that tax preparation firms would have such a great need for business insurance. I agree with most of this post, but I think that if, as a business owner, you wanted to skimp on a particular kind of insurance, I’d say that Workers’ Comp is probably not as essential for a relatively safe office job. Meeting state requirements should be enough. Thanks for these tips!

  16. Thanks so much for this post! I hadn’t even considered that tax preparation firms would have such a great need for business insurance. I agree with most of this post, but I think that if, as a business owner, you wanted to skimp on a particular kind of insurance, I’d say that Workers’ Comp is probably not as essential for a relatively safe office job. Meeting state requirements should be enough. Thanks for these tips!

  17. Thanks for the article. Quick question – do insurance providers offer these as a package? Obviously businesses need insurance for protection, but it is a huge upfront cost for newer businesses and I am looking for ways to save. Any thoughts on which providers I should look into? Thanks!

  18. Thanks for the article. Quick question – do insurance providers offer these as a package? Obviously businesses need insurance for protection, but it is a huge upfront cost for newer businesses and I am looking for ways to save. Any thoughts on which providers I should look into? Thanks!

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