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Professional Liability Insurance for Accountants, Bookkeepers, Tax Preparers and other Finance Professionals
As an accountant, you play a big role in your clients' financial health. It's a big responsibility, and you don't take it lightly. As you are well aware, small accounting mistakes can result in costly problems for your client. And dissatisfied clients sometimes turn to lawsuits to recover damages. If you should find yourself on the receiving end of a lawsuit, your legal costs could increase exponentially.
The very real risk of malpractice suits is the reason that every accountant needs professional liability insurance. Also referred to as "errors and omissions" or "E&O" insurance, professional liability insurance covers your accounting business if one of your clients should allege that the work you performed caused them a financial loss.
For example, if you're up to your neck in tax season and fail to file a client's return on time, the client could hold you responsible for any damages it may suffer. Or, if you make a technical error in your calculations or fail to include certain pieces of information in a client's tax return, you could be sued. If a lawsuit happens to you, even if you don't think you're at fault, you're still going to spend time and money defending yourself or trying to settle the charges out of court.
Within policy limits, professional liability insurance pays for a legal defense, your time spent in court instead of working, and other costs specified by your policy. If you're legally obligated to compensate your client for the loss or other damages, your E&O insurance will pay that award as well, according to the provisions in your policy.
What You Need to Know
E&O insurance policies are typically issued in increments of $1 million and have per-claim deductibles ranging from $1,000 to $25,000. These types of policies are issued on a "claims-made" basis, meaning that coverage must be in force both at the time of the alleged incident and at the time the claim is made, so it's wise to keep your policy in force even after you've completed an engagement with a client.
Because your client may require that you carry professional liability coverage, read the fine print in your contract to be sure you have the amount specified.
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Professional Liability Insurance Tips
- Professional liability insurance is typically issued on a "claims-made" basis. This means that for your claim to be covered, the alleged error or omission must be covered by the policy and must have taken place while the policy was in force, and the claim must be made while the policy is still active. In other words, don't let your policy lapse, even after your engagement is complete, or you won't have protection.
- E&O insurance only covers you for errors or omissions you or your employees make on the job, so some situations aren't covered. To protect yourself, use an engagement agreement that outlines procedures for conflict resolution and clearly states your and your client's rights.
- You never know what might spark a lawsuit, and sometimes, it's just as simple as a client relationship gone bad. Even when you do your best work, the risk of a lawsuit is real, so professional liability insurance is a must-have in the accounting field.