Hi everyone!
Welcome to our interactive and well-researched CPA insurance article.
After carefully reading our detailed and exhaustive article, you will be more knowledgeable about CPA insurance policies and their importance.
In particular, we will focus our attention on:
Owning insurance for your accounting firm is a no-brainer.
The financial sector is brutal, and any slight mistake, error, or omission is severely penalized.
Consider investing in good insurance professional services provider to protect yourself and your business from adverse legal exposures when dispensing your accounting services.
Let’s get down to it.
Introduction
An insurance policy from qualified insurance providers will help manage risks, finalize settlements and protect you from adverse legal action.
Any Certified Public Accountant (CPA) without professional insurance coverage is at risk of getting drowned in legal fees and claims in case of professional liability issues.
Breach of contracts, deviation from engagement letters, malpractice claims, and accidental injury are examples of litigation issues CPAs face.
Improve risk control and minimize legal exposure by engaging the services of a reputable accounting insurance company.
Keep reading as we demystify everything about accounting firm insurance.
Qualities of a Good Insurance Provider
Insurance companies are a dime a dozen.
According to the Insurance Information Institute, in 2020, the US had over 5929 registered insurance companies employing over 2.7 million people.
Choosing the best accounting business insurance provider out of all these options is a tall order.
Fortunately, our insurance cheat sheet will help you identify the qualities of a solid insurance services partner.
Here are some qualities of a good accounting insurance company.
1. Credibility
Is your preferred insurance company credible?
Always consider the trustworthiness of an insurance provider before signing up.
Check online for customer reviews, star ratings, and other feedback channels.
Alternatively, ask around your network of trusted CPA professionals for their opinion.
A credible insurance policy provider guarantees your investment and ensures that they will bail you out if any difficulty arises.
2. Customer service
Does your insurance provider offer 24/7 multilingual support through multiple communication channels like email, phone, and social media?
If not, you may want to reconsider your choice of an insurance company.
In today’s world, customer service is everything, and a good insurance provider should invest in responding to clients in a timely and efficient manner.
Consider the response time, quality of customer support, and professionalism of customer care staff when choosing an ideal insurance partner for your accounting firm.
3. Financial health
Insurance companies bail out their clients in times of financial distress and need enough liquidity at all times.
Although insurance companies are regulated, some companies mismanage their resources to the point that they can’t cover your insurance needs when the time comes.
Always perform a thorough scrutiny of an insurance provider’s publicly available financial information to gauge their suitability for your insurance needs.
A poor claims record, bankruptcy, and other financial mismanagement issues should alert you to the unsuitability of an insurance firm.
4. Licensing
Is your preferred insurance provider licensed?
Ensure that you engage the services of a bonafide insurance license provider registered with the insurance state department in your region.
Working with a licensed provider guarantees that your insurer can fulfill the legal and financial obligations deemed to you when necessary.
Consider working with AICPA member insurance firms.
Insurance companies offering AICPA insurance programs always maintain the highest level of ethical and professional integrity.
5. Competitively priced products
There are dozens of insurance companies that provide the same insurance products with a significant price difference.
Ensure that you sign up for an insurance company with competitively priced products and services.
Don’t compromise on quality, though.
Shop around online and get quotes from at least four different companies and compare their price points.
When choosing an insurance partner, try to find the perfect balance between quality and pricing.
6. Clarity
There is nothing worse than dealing with an insurer with hidden charges and other incomplete or untruthful statements.
In the process of identifying an ideal insurance partner, focus on the tone and voice of the insurance company.
A trustworthy company will lay all details of their insurance policies and services on the table from the get-go.
Carefully go through the insurance policy documents, ask relevant questions, and look for red flags.
Finding a good insurance firm for your CPA business is vital in ensuring your peace of mind.
A good insurance program from a reputable firm will protect you against the professional dangers associated with the financial sector.
What type of insurance does a CPA need?
Types of insurance policies for CPAs
CPAs are responsible for their client’s financial health and undertake various financial duties, including bookkeeping, filing tax returns, and preparing financial statements.
These financial tasks are full of risks that business liability insurance covers.
A competent accounting company should factor in all the possible exposures when creating an effective risk management program.
Consider investing in CPA insurance which protects your accounting firm from all possible exposures in the business.
CPA insurance includes insurance policies and products that bookkeepers, tax preparers, auditors, and CPAs need in their daily operations.
Here are some of the common types of insurance for accountants:
1. Professional Liability Insurance
The professional liability insurance(PLI) or Errors & Omission insurance policy is a crucial insurance product that protects accounting firms from lawsuits due to poor services or other professional errors.
As with every other profession, accountants commit errors either by negligence or omissions, which the client can litigate.
These court cases are expensive and time-consuming to defend, especially for a small business, in which case an accounting liability insurance cover will prove indispensable.
The professional liability for accountants insurance program helps auditors and accountants avoid the negative financial implications of court cases.
And unlike general liability insurance, which does not cover professional claims, CPA malpractice insurance will protect you against the following errors:
- Errors of omission.
- Errors of negligence
- Malpractice
- Misrepresentation
A professional CPA registered with a bona fide professional liability insurance CPA company will have their legal fees and any associated settlements covered up to the point stated in the policy document.
2. Business owners policy
A business owner’s policy (BOP) combines basic insurance coverage for accounting professionals.
The BOP includes business liability and business property insurance.
Business liability insurance contains general liability, professional liability, and product liability insurance.
General Liability insurance
The general liability insurance policy covers you and your firm against property damage and bodily injury claims.
If clients or visitors get injured or their property gets destroyed on your premises, your insurance provider will settle the claims on your behalf.
Commercial property insurance
Commercial property insurance covers the business property in unexpected calamities like fire or floods.
Typically the commercial property insurance will cover your:
- Office building
- Computer
- Office furniture
- inventory
Business income insurance
A business income insurance ensures the consistent flow of business income in the event of income loss due to property damage.
3. Cyber liability insurance
The American financial sector faces the second-highest rate of data breaches, according to a Schneider report of 2021.
This startling revelation means that all CPA firms need robust cyber security measures to protect them from cyberattacks.
Cyber liability insurance protects your firm against lawsuits resulting from the loss of sensitive information.
The cyber liability coverage protects policyholders from:
- Data breach lawsuits
- Fraud monitoring costs
- Breach notification expenses
The two main types of cyber security policies for your CPA firm are first and third-party cyber liability insurance.
First party liability insurance
First-party liability insurance protects you from cyber-attacks and data breaches costs that occur in your place of work.
This liability insurance covers:
- Cyber extortion costs
- Monitoring affected clients credit services
- Breach notification
Third-party liability insurance
The third-party liability insurance protects your firm from potential lawsuits if your clients suffer cyber-attacks from your products or services.
This insurance liability covers:
- Legal costs
- Attorney costs
- Court settlements
4. Workers compensation insurance
The worker’s compensation insurance policy is mandatory in most states in the US.
This insurance policy covers the medical costs and lost wages incurred by employees due to work-related illnesses or injuries.
CPAs’ common work-related issues include musculoskeletal disorders and vision impairments.
Other injuries covered by this cover include accidental slipping and falling.
Workers’ compensation insurance usually covers:
Medical Expenses
Hospital bills associated with employees’ illness and injury include:
- Emergency medical expenses (ambulance and emergency room expenses)
- Continuous medical cost, i.e. therapy, medication
- Death benefits in case of loss of life
- Lost wages due to illness or injury
Employee injury lawsuit
The worker’s compensation covers you if an employee institutes legal proceedings against you due to work-related injury or illness.
The insurance cover will cater for:
- Legal fees
- Settlements
- Court cost
- Witness fee
5. Employment Practises Liability Insurance
The number of employee vs. employer lawsuits is at an all-time high in the US, mainly due to related COVID issues.
In 2020, the Equal Employment Opportunity Commission handled 70,840 discrimination cases in the private and public sectors securing $439.2 million as victim compensation.
To avoid being part of the statistics and getting sued by your employers, consider investing in employment practices liability insurance (EPLI).
This insurance policy will cushion you against the hefty legal fees associated with court cases from employment practices liability litigation.
The EPLI covers you against claims associated with:
- Sexual harassment
- Discrimination
- Wrongful termination
- Negligent evaluation
- Promotions
- Breach of contract
- Privacy invasion
Please note that most EPLI coverages include deductibles and exclusions.
Employment practices liability coverage is necessary for any serious and forward-thinking CPA firm.
7. Commercial Auto Insurance
Apart from New Hampshire and Virginia, other American states require auto insurance because there is a 36.6% chance of getting involved in an auto accident every time you drive.
Commercial auto insurance covers property damage, medical expenses, and legal costs in the event of your business vehicle getting involved in an auto accident.
Commercial auto insurance provides the following covers:
- Bodily injury liability
- Property damage liability
- Collision coverage
- Comprehensive coverage
- Medical expense coverage
- Rental car coverage
- Uninsured/Underinsured motorist coverage
- Personal Injury Protection
Why do you need CPA liability insurance?
CPA professional liability insurance is essential for CPAs to avoid incurring legal fees and other associated costs.
Here are five good reasons why accountants need insurance:
1. Reduce exposure to litigation
Professional indemnity insurance for accountants protects you and your accounting firm in the event of a client’s legal action against you due to professional negligence, errors, and omissions.
CPA insurance also protects you against employees suing you, loss of income, and auto accidents.
2. Maintain business continuity
Accounting insurance coverages ensure that your business continues to run even when you’ve suffered calamities, loss of income, or physical injury.
The worker’s compensation, auto, and commercial property insurance are excellent insurance examples that maintain business continuity.
3. Meet statutory obligations
Some states impose compulsory insurance for accounting firms, including worker’s compensation and professional liability insurance.
Meeting the state insurance requirements means you can continue running your business without issues.
4. Protect your employees
The workers’ compensation and health insurance policies protect your employees’ health, improving their effectiveness and productivity.
Additionally, the auto insurance license covers you and your employees in case of an auto accident.
5. Protects against unforeseen disasters
Commercial property insurance covers your work premises against unforeseen natural calamities (floods, earthquakes), fire, theft, and vandalism.
If unexpected calamities occur, your insurance provider will compensate you for the insured amount.
Conclusion
All businesses need insurance, especially accounting firms that have higher chances of being sued due to the nature of the finance industry.
Innovative insurance solutions offered by leading accounting insurance providers help insurance accountants avoid the hefty legal fees, fines, and compensation from court cases.
Accountants’ malpractice insurance is vital for small accounting firms with limited budgets since legal fees are usually high.
When choosing malpractice insurance for accountants, consider investing in an AICPA professional liability insurance provider like AON.
Always prepare for the unexpected by signing up for an accountant’s liability insurance plan.
