Accountants: Malpractice Insurance—Yes Or No?

Accountants and accounting firms face a variety of risks in their day-to-day operations, including errors, omissions, negligence claims, and lawsuits. To mitigate these risks, they need to carry malpractice insurance, also known as professional liability insurance. This type of insurance protects accounting professionals from financial losses resulting from mistakes or oversights in their work, such as errors in financial record-keeping or failure to meet deadlines. It also covers legal costs associated with defending against frivolous lawsuits or accusations of professional negligence. The cost of accountant malpractice insurance varies depending on factors such as the size of the firm, claims history, areas of practice, and annual revenue. However, it is generally considered affordable and crucial for risk management in the accounting profession.

Professional liability insurance costs

Professional liability insurance, also known as errors and omissions (E&O) or malpractice insurance, is an important investment for accountants to protect themselves from the costs of lawsuits, disgruntled clients, or charges of professional negligence. The cost of this insurance depends on a variety of factors, including the size of the business, its annual revenue, the number of employees, the location, and the business risk.

The median cost of professional liability insurance for small businesses is $61 per month, or about $735 annually. However, this varies depending on the industry and specific business risks. For accountants and CPAs, the cost is typically less than $45 per month or $500 annually. This policy covers legal costs if an accounting or auditing business is sued for substandard work.

The cost of professional liability insurance for finance and accounting businesses is influenced by their business size and risks. The median cost is less than $35 per month or $400 annually. Among finance and accounting businesses that purchase professional liability insurance, 11% pay less than $300 per year, while 62% pay between $300 and $600 per year.

The average cost of professional liability insurance for accountants can range from $400 to $6,000 per year, depending on factors such as the number of accountants in the firm, claims history, areas of practice, and annual revenue. For an accounting firm with an annual revenue of $200,000, the cost of professional liability insurance is estimated to be around $1,000 per year.

To obtain an accurate quote for professional liability insurance, it is essential to provide detailed and accurate information about your business.

General liability insurance

Additionally, general liability insurance covers advertising injuries, including defamation (libel or slander) and copyright infringement. If you inadvertently copy a competitor's slogan or advertising campaign, this policy will provide financial protection. It is worth noting that general liability insurance does not cover employee injuries, professional mistakes, or data breaches, so accountants may also need to consider other types of insurance, such as professional liability insurance, cyber liability insurance, and workers' compensation insurance.

The cost of general liability insurance for accountants and CPAs is relatively affordable. The median premium is less than $30 per month or $350 per year, with a policy limit of $1 million per occurrence and a deductible of $500. The cost of this insurance depends on various factors, including the size of the business, the number of employees, and the industry risks. For example, businesses with a large number of clients or frequent public interaction tend to pay more for this type of insurance.

Cyber insurance costs

The cost of cyber insurance for accountants and CPAs depends on a variety of factors, including the size of the business, the number of employees, and the amount of sensitive data handled. Cyber insurance is crucial for accounting professionals as they handle sensitive information and are at risk of cyberattacks and data breaches, which can be financially and reputationally devastating.

The median cost of cyber liability insurance for accountants and CPAs is less than $90 per month or $1,060 per year, according to Insureon. This policy helps cover legal fees related to a data breach or cyberattack. The policy limit typically ranges from $1 million to $5 million per occurrence, with a median limit of $1 million.

Small businesses, in general, pay an average premium of $145 per month or about $1,740 annually for cyber insurance. However, the cost can vary depending on the specific industry and the level of cyber risks. For example, low-risk companies like local businesses with a limited customer base will pay less than a retail store that handles customer credit card information. The amount of revenue generated by the business also impacts the cost, as insurers perceive higher revenue as an increased chance of being targeted by cybercriminals.

Additionally, the strength of security measures plays a role in determining cyber insurance costs. Businesses that invest significant resources in cybersecurity and employee education on cyber threats tend to receive lower premiums.

It's worth noting that bundling insurance policies, such as technology errors and omissions insurance, and paying annual premiums upfront can help reduce the overall cost of cyber insurance.

Workers' compensation insurance

For accountants and CPAs, the median cost of workers' compensation insurance is approximately $395 per year, with monthly premiums typically falling below $35. This policy is designed to cover medical expenses and lost income for employees who suffer injuries or illnesses related to their jobs. It may also cover burial expenses and provide benefits to the employee's family in the unfortunate event of a work-related death.

It's important to note that workers' compensation insurance does not cover all scenarios. For instance, it won't provide coverage if an employee intentionally caused their injury, was injured while intoxicated or playing around, or was injured outside of work-related activities. Additionally, if an employee is injured due to an "act of God," such as a flood or hurricane, the insurance may not apply unless the job specifically entailed a high exposure to such events.

The cost of workers' compensation insurance can vary based on several factors, including the number of employees, the level of risk associated with their jobs, and the business's location. In Texas, for example, while most private employers are not mandated to carry workers' compensation insurance, those contracting with government entities are required to provide this coverage for employees working on those projects.

Overall, workers' compensation insurance is a vital safeguard for businesses and their employees, offering peace of mind and financial protection in the event of work-related injuries or illnesses.

Fidelity bond costs

The median premium for a fidelity bond is $88 per month for small businesses, or $1,055 annually. The cost depends primarily on the size of the bond, which is the maximum amount the insurance company will pay out to cover a loss. The amount of coverage chosen for a fidelity bond varies widely, ranging from as low as $5,000 to $10 million, based on the scope of your business and your liabilities.

The cost of a fidelity bond is usually a small percentage of the bond's total amount of coverage. For example, if a bonding company charges you 1% of the total bond amount, then a $2,000 bond would cost $20, and a $10,000 bond would cost $100 annually. This is why the coverage size of the bond is the biggest factor in determining its cost. A surety company would charge more for a larger bond sum, but the fidelity bond would also provide greater coverage.

In addition to the size of the bond, there are other factors that will determine the cost of a fidelity bond. Your insurance provider will consider your industry, credit history, and the amount of sensitive information your company handles, as well as the number of employees who can access the data. If your fidelity bond has a provision for a deductible, that will also influence the cost.

If your business operates in a high-risk industry, such as IT, financial services, or healthcare, or earns significant revenue, you'll need to pay more for fidelity bonds. Coverage will cost much less if you operate a small, low-risk business.

Frequently asked questions