What is Liability Insurance for Bookkeepers?

As a bookkeeper, whether you own a bookkeeping business or offer your services as a freelancer, you’re someone who provides an essential and professional service for other individuals and businesses. The work you do to prepare and maintain others’ records goes a long way toward ensuring their security and prosperity.

Any one individual’s or business’s records involve countless other stakeholders. Securing records for one business means directly and indirectly impacting countless others as well. In other words, managing just one client’s records creates lots of liability. As such, your own security as a bookkeeper is extremely important

Insurance is the key to security in the face of liability.

So, this guide will walk through everything you need to know about liability insurance for bookkeepers. Before we look at what liability looks like for your bookkeeping business, let’s first take a look at what it can mean for any business.

Liability, Explained

Insurance is coverage. When you buy any kind of insurance, you’re paying a premium up front in exchange for protection and support related to risks, and their consequences, that you may face in the future. Insurance is all about liability, or what kinds of risks you’re liable to face.

For business insurance, liability involves lawsuits that may be brought against your business. Clients, customers, and other parties you come into contact with may file suit against your business, for a variety of reasons. Coverage provided relates primarily to defense costs resulting from these lawsuits, such as:

• Defense and legal fees, trial expenses
• Settlements agreed upon
• Jury awards (damages, etc.)
• Past costs: lost income, etc.
• Medical costs, short- and long-term
• Etc.

The specific reasons for lawsuits filed against your business determine the liability, and thus the kind of insurance coverage, involved. In business insurance terms, liability breaks down into two major categories of insurance coverage: general liability and professional liability.

Let’s take a look at each, respectively.

General Liability

In the broadest possible terms, general liability involves risks that your business is exposed to but that are unrelated, or at least not directly related, to the business practices you engage in. These can sometimes be difficult to distinguish from business practices. However, one helpful thing to remember is that these are risks that any business may face, regardless of profession or focus.

Risks covered by general liability include but are not limited to third party claims of:

• Bodily injury
• Advertisement and other personal injury
• Damage to property

On the other hand, business-specific risks fall under the category of professional liability.

Professional Liability

In contrast with general liability, professional liability involves the risk your business is exposed to specifically because of the particular business practices you engage in. This kind of liability is sometimes referred to as errors and omissions, or E&O.

The particular scenarios covered can vary by business, and some businesses’ professional liability involves an entire subset of insurance, such as malpractice insurance for medical and legal practices.

Risks covered by professional liability across various industries, they include but are not limited to:

• Real or perceived:
  • Negligence
  • Incompetence
  • Maltreatment

• Flaws, intentional or unintentional, in:
  • Practices
  • Products
  • Services
  • Etc.

It’s important to note that, with respect to business insurance, the intention (or lack thereof) behind a given action is important only insofar as it pertains to any legal distinctions. Ultimately, the result of a given interaction is what matters. Likewise, there is no distinction between perception and occurence: if a client says something happened, and files a lawsuit on that basis, it doesn’t matter whether it actually happened or not.

The above qualities apply to all kinds of business insurance. 

But what about insurance for bookkeepers?

Bookkeeping and Liability

Bookkeepers of all stripes face risks, just as any and every business faces risks.

Now that you have a solid understanding of what liability means for any business, it’s time to take a look at what bookkeeping, accounting, or tax preparation business insurance covers. Whatever kinds of bookkeeping you practice, your work impacts various records and their stakeholders, including but not limited to:

• Individuals’ and families’ overall finances
• Businesses’ revenue and expenses
• Payroll and associated employer-employee relations
• Persons involved in exchange of records and related data
• Any and all stakeholders connected directly or indirectly to the above

Now, let’s look at how these stakeholders’ concerns distribute into professional and general liability, respectively.

Professional Liability for Bookkeepers

As mentioned above, professional liability can vary between different industries, professions, and focuses. So, what might errors and omissions insurance for bookkeepers look like? 

Bookkeeping involves a high volume of complex data entry and manipulation, all of which entails risk. Some professional liabilities bookkeepers face include but are not limited to:

• Neglected work – A client may claim that you neglected to perform a given task, or part thereof, that you had agreed to complete. This might include missing substance, such as a missing document or documents, or missed deadlines (failure to complete a task within an agreed upon term). In any such case, clients may sue for losses resulting from your real or perceived negligence.
• Flawed or inaccurate records – A client may claim that records you prepared for them are inaccurate in one or more ways. For instance, a document may omit transactions or details thereof, misrepresent such information, or present factually inaccurate information like fabrications or miscalculations. In any such case, or combination thereof, a client may sue for losses caused by the real or perceived errors.
• Data breach of Fiduciary Duty – A client may claim that you have violated your fiduciary commitments to them, acting against their best interest through negligence, error, some combination thereof, or some other means. They may sue, claiming that this data breach led to loss.
• Misleading statements – A client may claim that a document you prepared for them contained information that misled them, even if it was technically accurate or factually correct. There may be something about the presentation of the information that was misleading. Conversely, they may have misinterpreted the information. In any case, clients may sue because of losses caused by the miscommunication.

In any of these cases, as noted above, an important thing to note is that your actual intentions do not matter. Likewise, the actions you actually performed do not matter. What matters, with respect to bookkeeping insurance, is whether or not a client has filed suit—whether they claim they have experienced or perceived negative results.

General Liability for Bookkeepers

While general liability is more stable across different professions, there are certain aspects of it that are more or less prevalent depending on the given industry. Bookkeeping is relatively low-risk with respect to general liability, especially when compared to industries like construction.

However, some general liabilities particularly important for bookkeepers are:

• Personal injury – If you meet with clients in an office space that you own or rent, there is always a chance that the client may trip, slip, or otherwise fall, suffering an injury on the premises of your business as a result of your actual or perceived negligence. As a result, they may sue.
• Property damage – If you’re in contact with your clients’ valuable personal property, such as their personal cell phones, laptops, or other devices, then you pose the same threats as their own regular use entails, such as drops or other accidental damage. If a client’s device is damaged on your property or as a result of your interaction with it, they may sue.

Given all of these factors, and many more not listed here, liability insurance for bookkeepers is both serious and complex.

But the process of getting covered—getting insurance—doesn’t need to be.

NOW Insurance: Liability and Security, Simplified

Here at NOW Insurance, our mission is to provide simple, fast, affordable insurance. We understand that liability and security are extremely important for all businesses. We also understand how and why they’re especially true for bookkeepers. That’s why we enable you to tailor your plan specifically to your insurance needs.

We offer General & Professional Liability Insurance that can cover your bookkeeping business in all of the various scenarios outlined above, and many more. 

In addition, we also offer a unique Cyber Security Insurance to cover various risks and vulnerabilities associated with online interaction. Cyber liability, and thus cyber security, has evolved rapidly over the past few decades—it will continue to evolve as cyber technology does.

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

Cover Your Bookkeeping Needs

Understanding liability goes a long way toward understanding insurance overall. And understanding insurance is itself half the battle of securing yourself against future risk. What’s the other half? Activating your knowledge and covering your insurance needs by signing up for a plan that works for you.

By reaching the end of this guide, you’ve achieved a solid foundation in what you need to know about liability and insurance, both for businesses in general and for bookkeeping in particular. Now, what you do with your knowledge is up to you. But you can rest assured knowing you’re well prepared to renew your plan with confidence, or find your first insurance policy or new one to replace your existing coverage.

Sources:

1. CPA Practice Advisor. What Accountants Need to Know About Professional Liability Insurance. https://www.cpapracticeadvisor.com/firm-management/news/12371070/what-accountants-need-to-know-about-professional-liability-insurance
2. Ray, L. Legal Issues Affecting a Bookkeeping Business. https://smallbusiness.chron.com/legal-issues-affecting-bookkeeping-business-67754.html