Insurance for Bookkeepers: A Complete Guide Blog | Insurance for Bookkeepers: A Complete Guide
Insurance Basics 07/07/20

Insurance for Bookkeepers: A Complete Guide

Bookkeeping is a vital, essential practice. From basic checkbook balancing at home to the various branches of professional accounting, the creation and maintenance of accurate records is both what keeps individuals and businesses afloat and what enables them to grow.

Professional bookkeeping, especially, is more than just a business—it’s a pillar of society. Professional bookkeepers ensure the accuracy and security of records that impact everyone in society on a day-to-day basis. So, in turn, it’s extremely important that bookkeepers themselves are secure. To that effect, whether you’re a freelance bookkeeper or own a bookkeeping business, you should look into bookkeeping insurance to ensure your own safety.

This guide will break down all you need to know about insurance for bookkeeping business concerns. To that effect, we’ll look at:

  • Why you need bookkeeping insurance
  • What bookkeeping insurance is
  • How to insure your business

But first, let’s cover some basics of what insurance is, and how it works, for all businesses.

Insurance 101

Insurance is protection from, and support for, financial loss. Individuals and businesses purchase insurance in order to compensate for future losses they may experience as a result of circumstances both within and beyond their control.

An insurance policy is a kind of wager or hedge—an assumption of minor loss upfront in exchange for protection from potentially major losses down the road.

In an insurance transaction, an insurer (an insurance company, provider, carrier, underwriter, etc.) covers a policyholder (an insured). Specifically, the insurer provides coverage, over a set term, for various scenarios that involve risk. In exchange, the insured pays a premium. The insurance coverage purchased and provided takes the form of payments to compensate various losses and costs, including but not limited to:

  • Current or potential value of items
  • Actual or potential income lost or affected
  • Legal fees, including defense, settlements, awards, etc.
  • Medical costs, including past, present, and future

While the kinds of scenarios insurance covers vary widely, the two main categories of business coverage involve general and professional liability.

Liability: General and Professional

In business insurance, liability refers to the fact that your business faces risks and is liable for a variety of losses associated with those risks. These risks turn into costs when third parties file lawsuits against your business and you are faced with:

  • Defense and trial fees
  • Settlements and jury awards
  • Medical costs (past, present, and future)
  • Loss of income
  • Etc.

These costs break down into major categories in business insurance, general liability and professional liability, depending on the original source or reason for the lawsuit.

General Liability

General Liability (also known as Commercial Liability) refers to the various risks that your business faces that are unrelated to the business itself (the specific professional services provided).

Insurance coverage pertains to legal, medical, and other costs related to risks including but not limited to third- party claims of:

  • Bodily Injury
  • Personal Injury
  • Property Damage

In contrast, matters related to your business are considered professional liability.

Professional Liability

Sometimes called Errors and Omissions (E&O), this term refers to the risks your business faces that are specifically related to the business itself—the products and services professionally exchanged.

These risks involve claims including but not limited to: 

  • Negligence or maltreatment, real or perceived.
  • Flaws, intentional or unintentional, in:
    • Practices
    • Products
    • Services
    • Etc.

Importantly, distinctions between intention and accident are relatively insignificant. In addition, whether an incident happened or not doesn’t matter. What matters is whether a third party claims something happened.

So, with all that in mind, you may wonder…

Do Bookkeepers Need Insurance?

The short answer is yes. Bookkeepers need insurance, the same way all businesses need insurance.

The long answer—technically, whether bookkeepers need insurance depends on what “need” means. Legally, certain businesses are required to carry certain forms of insurance, and whether your business must carry insurance depends upon your state’s laws.

Regardless of legal requirements, though, all businesses can benefit from the protection that insurance provides. Even the most careful business owner could face serious and potentially destructive financial struggles resulting from things outside of their own control. If a business’s needs include surviving and thriving in the face of such turbulence, then all businesses need insurance.

Since bookkeeping businesses are directly involved in the financial records of many stakeholders’ finances, they face compounding risks associated with these clients, as well as the various businesses they come into contact with. So, insurance is especially apt for bookkeepers.

But what does bookkeeper insurance look like?

What Bookkeeping Insurance Is and How It Works

Now that you know the basics of how overall insurance works, and you understand that and why you need it for your bookkeeping business, let’s look at what bookkeeping insurance is and how it works.

Bookkeeping insurance is a branch of business insurance, so all standard general and professional liabilities apply. However, there are some that are particularly important for bookkeepers.

Liabilities and Coverage

Bookkeeping, as an industry, has unique pitfalls and hazards. Some areas of professional and general liability coverage especially important for bookkeepers are:

  • Omitted work (professional liability) – A client may sue because you have failed to prepare or adequately deliver a given document.
  • Errors in work performed (professional liability) – If a client believes you have made a bookkeeping error in their records, they may sue for any losses it has effected or can effect moving forward.
  • Bodily injury (general liability) – If you own or rent an office or other client-facing space, and a client or potential client is injured on the premises, you may be sued.
  • Property damage (general liability) – If you cause damage to the personal property of a client, such to their mobile phone or computer, you may be sued.

Importantly, in all of these cases, your own intentions and even actions are less important than the perceived and real impacts clients experience. Whether or not you meant to omit work, make an error,  or create conditions leading to harm, the effect is the same. 

You need coverage in any, and all, cases.

How Coverage Works

When you buy insurance, you generally don’t want to use it, per se; you don’t want a bad thing to occur that you need coverage for. You just want to be covered in case something happens. Mistakes do happen, and when they do, your coverage is a silver lining. 

But how does that silver lining work?

The specifics depend upon your policy, but the basics involve your insurer covering legal costs related to your losses. The process generally looks like this:

  • There’s a mishap
    • A client sues you
  • You file an insurance claim with your insurer
    • You report the suit and legal costs it involves
  • Your insurer compensates you according to your policy
    • You receive payments to cover legal fees, etc. (see above)

How to Insure Your Bookkeeping Business

So, how can you go about insuring your business? There are tons of insurance providers and policies to consider, and while shopping for insurance doesn’t need to be a burdensome task, it often can be.

The best way to ensure you find the best insurance for your bookkeeping business is to prepare yourself for your search and negotiation by assessing your needs. What kinds of risk do you face? If you’ve been insured in the past, request a loss runs report to present to your new insurer. Otherwise, be ready to report and accurately account for your business’s insurability.

All in all, the process of insuring your business involves a few key steps:

  • Assess your needs
  • Find a provider
  • Negotiate terms

Costs

You might be wondering, how much does bookkeeping business insurance cost? Here, the answer is less simple—costs vary due to a variety of factors. Some things that influence the cost of your plan include:

  • Kinds of coverage
  • Term of plan
  • Your risks, especially:
    • Size and scope of business
    • Its location
    • Business history
    • Your potential for growth
    • etc.
  • And, of course, the insurer you choose

NOW Insurance Can Help

Here at NOW Insurance, our mission is to provide easy access to affordable insurance that meets your needs. We can help you tailor a plan specifically to the particular needs of your bookkeeping business, no matter its location, size, or scope.

Getting started is as easy as answering a few basic questions, and getting a free, instant quote.

We offer General Liability Insurance and Professional Liability Insurance for bookkeepers for the various risks outlined above. We also offer unique coverage in the form of Cyber Security Insurance that’s designed to protect you from various vulnerabilities and liabilities related to the online components, and contingencies, of the work you do.

Get the Coverage You Need

Now that you know all that you need to know about bookkeeping insurance, it’s time to make sure you’ve got all your bases covered. Whether you’re shopping for insurance for the first time, looking for a different plan to replace your existing one, or negotiating a renewal, you’re equipped to find the right match for your business.

Get your business insured so you can go on securing others’ prosperity—and your own!

Sources: 

  1. CoverWallet. Accountants Insurance & Bookkeepers Insurance. https://www.coverwallet.com/business/other-accountants
  2. Gabrielle (The Freelance Bookkeeper). Do Bookkeepers Need Professional Liability Insurance? https://thefreelancebookkeeper.com/blog/professional-liability-insurance/
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