CPA Liability Insurance: What You Need to Know

 

What Is CPA Professional Liability Insurance?

Professional liability insurance, also known as errors and omissions insurance, protects CPAs and accounting firms from damages due to negligence, errors, and omissions in their work.

As a CPA, your clients rely on you to provide accurate financial advice and services. But what happens if you make a mistake that costs your client money? CPA liability insurance helps ensure you're covered.

CPA liability insurance typically covers legal expenses and payouts for errors like:

• Misstating financial statements or tax returns

• Failing to detect fraud

• Providing improper tax advice

• Errors in auditing or accounting work

Without this insurance, you could be personally liable for thousands or even millions of dollars.

The specific coverage, limits, and costs of CPA liability insurance policies vary depending on factors like:

• Your firm’s size, location, and annual revenues

• The types of clients and services you provide (tax prep, auditing, consulting, etc.)

• Your previous claims history

• The policy limits and deductibles you choose

Shopping around at different insurance providers is the best way to find a policy that meets your unique needs at an affordable price.

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Why CPAs Need Liability Insurance

As a CPA, your advice and services are relied upon by your clients to make important business and financial decisions.

Here are some of the reasons why you need liability insurance:

1. Lawsuits Are Common

Unfortunately, lawsuits against accountants are common. Clients may claim negligence, improper advice or flawed audits led to substantial losses. Defending against such legal claims can be extremely costly. Without liability insurance, your entire practice could be at risk.

2. Peace of Mind

Liability insurance gives you peace of mind that your livelihood won’t be destroyed by a single lawsuit. For a relatively small annual premium, you have coverage for legal defense fees and damages should a claim be brought against you. Policies typically start around $500 to $3,000 per year for solo practitioners, depending on your practice size and revenue.

3. Meeting Licensing Requirements

Most states require CPAs to carry a minimum amount of liability insurance to maintain their license. Requirements vary. Make sure any policy you purchase meets your state's minimums. Failure to do so could result in loss of licensure, fines and other disciplinary action.

4. Choosing a Policy

When shopping for liability insurance, consider the policy limits, coverage types (defense and settlement costs), exclusions, deductibles and the insurer's financial stability.

Higher limits and broader coverage typically mean higher premiums.

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How to Choose the Right CPA Liability Insurance Policy

Here are some tips to help you find an affordable yet comprehensive policy.

1. Consider Your Risk Exposure

Think about the services you offer and types of clients you work with. The more complex your services and the larger your clients, the greater your risk of a claim.

2. Compare Policy Limits

Typical CPA professional liability insurance provides $10 Thousand per claim and $100 Thousand in aggregate coverage.

3. Check Available Endorsements

Look at what optional endorsements each insurer offers, like coverage for cyber liability, privacy breaches, or regulatory actions. If these exposures concern you, find a carrier that provides endorsements to cover them.

4. Consider Your Deductible

A higher deductible, like $10,000 to $25,000 per claim, can lower your premium substantially. But only choose a deductible amount you could comfortably pay in the event of a claim.

A lower deductible, around $2,500 to $5,000, offers more coverage but at a higher cost. Weigh the risks versus your budget to determine the right deductible level.

5. Compare Carrier Reputations

Look at ratings from independent rating agencies like A.M. Best to gauge each insurer’s financial stability and reliability in paying out claims.

Conclusion

By evaluating your unique risk exposure, coverage needs, and budget, you can find an affordable CPA liability insurance policy that provides the protection you need.