Accounting Firms: Insured Or Not?

Most accounting firms carry insurance to protect themselves from the financial repercussions of lawsuits and to safeguard their business, clients, and staff. While the specific insurance policies taken out by accounting firms may vary, there are several types of insurance that are considered essential for accounting businesses, including professional liability insurance, general liability insurance, and commercial property insurance.

Professional liability insurance

Accountants provide financial advice to clients, and with this responsibility comes the risk of financial loss. Professional liability insurance is therefore crucial for any accounting business's risk management plan. Even if you are an expert in your field, mistakes can happen, and if a client believes a mistake has been made, they can sue.

For example, if an employee makes an auditing mistake, or a tax preparer makes a bookkeeping error, or a budget is overestimated, professional liability insurance will cover the costs of any resulting legal action. It is similar to malpractice insurance for medical professionals.

The cost of professional liability insurance varies depending on the size of the business, the number of employees, and the revenue of the firm.

General liability insurance

Additionally, general liability insurance can protect accounting firms from advertising injuries, such as inadvertently copying a competitor's slogan or mimicking another advertising campaign. It covers defamation, both libel (written) and slander (spoken), as well as copyright infringement.

Commercial property insurance

When determining the value of your business property for insurance purposes, insurance companies use either replacement cost (RC) or actual cash value (ACV). RC refers to the amount needed to repair, replace, or rebuild property to its original state, without deducting depreciation. On the other hand, ACV considers depreciation and provides the cost to replace with similar property, resulting in a lower payout.

The cost of commercial property insurance depends on several factors, including the value of the business property and assets, the business location, the construction of the building, and the industry. For example, an accounting firm in a large city with expensive equipment will likely pay a higher premium than a small business in a less populated area.

Overall, commercial property insurance is an essential investment for any business, including accounting firms, to safeguard against unforeseen events and protect their physical assets.

Employment Practices Liability Insurance

The importance of EPLI coverage is underscored by the increasing number of lawsuits filed by employees against their employers. While large corporations typically have substantial employment practices insurance, small or new businesses are often more vulnerable to employment claims due to their lack of legal resources and formal policies.

The cost of EPLI coverage is influenced by factors such as the number of employees, prior lawsuits, employee turnover rates, and the presence of established rules and practices. EPLI can be offered as an endorsement to a Business Owners Policy (BOP) or as a stand-alone policy, depending on the size of the company.

To mitigate employment practices liability risk, accounting firms should implement preventative measures such as developing comprehensive employee handbooks, creating detailed job descriptions, conducting performance reviews, and establishing anti-discrimination and anti-harassment policies.

By combining EPLI with other essential insurance coverages, accounting firms can effectively manage their exposure to employee-related claims and create a safer and more secure work environment for their staff.

Workers' compensation insurance

This type of insurance also offers liability coverage, protecting the business from potential lawsuits filed by employees related to workplace injuries. Even if the business is not at fault, accusations of negligence can lead to costly legal battles. Employer's liability insurance, typically included in workers' compensation policies, provides crucial financial protection in such cases.

The cost of workers' compensation insurance varies depending on factors such as business size, payroll, and claims history. It is important for accounting firms to assess their specific needs and consult with insurance providers to ensure they have adequate coverage at a competitive rate.

Overall, workers' compensation insurance is a vital component of any accounting firm's risk management strategy, ensuring that employees are protected in the event of work-related injuries or illnesses and providing financial peace of mind for the business owners.

Frequently asked questions