Do Bookkeepers Need Professional Liability Insurance?


“As a bookkeeper, do I need liability insurance?”

This is a question I'm asked from time to time by professional bookkeepers who are starting their own freelance bookkeeping business. Even if you've been running your bookkeeping practice for some time, you may not have considered whether you need any kind of insurance for the type of work we do.

While I'm not a lawyer nor an insurance expert, I do have experience as a freelance bookkeeper and will answer this question based on my own research and experiences. So that means…

This article is not legal or insurance advice and for information purposes only. You should discuss this topic with your own attorney or qualified insurance professional who knows your unique circumstances before making a business decision.

Errors & Omission or Professional Liability Coverage

They are the same thing, just two different terms. Kind of like how an Income Statement and Statement of Profit & Loss are the same. Errors & Omissions (E&O) insurance is not to be confused with General Liability insurance that is related to the physical premises of your business (even if that is your home). The latter is usually part of, or added onto, your property insurance and covers liability that could occur if clients or other business-related people come to your office and are injured physically, such as from a slip and fall.

E&O covers mistakes or mishandling of financial records that you or your staff may make… or be perceived as making…which causes damage to your client or others. The key to remember here is, this problem is not if you (or your staff) actually make errors, but whether someone accuses you of doing so. Either way you will need to defend yourself legally, even if found 100% innocent.

Is it Common for Bookkeepers to be Sued?

While I don't have any statistics on this specifically for bookkeepers, in my own experience, it's rather rare for a freelance bookkeeper to be sued for actual or perceived mistakes. However, that doesn't mean that it won't happen.

We are working with sensitive information, and money is often a very emotional topic. If something goes wrong in a client's business, it's easy for him or her to look for someone to blame. Depending on the situation, that could mean the bookkeeper, either directly or indirectly.

According to Insureon, here are some of the most common reasons clients sue accounting professionals:

  • A sudden change (negative) in the client's financial situation
  • The client is subject to fraud (and has a lawyer who is looking to sue someone)
  • Bankruptcy of a client, resulting in third parties looking to recoup losses
  • Errors or miscommunication surrounding taxes (if you prepare tax returns)

Why Consider Professional Liability Insurance, How it Works and the Cost

Sometimes when you're contacted by a business owner looking for a freelance bookkeeper for the first time, or if he or she has had a bad experience with a less-than-competent bookkeeper, you will be asked if you have insurance. They often don't know how E&O works (we'll get to that in a minute), but they're trying to determine how credible you are as a professional.

So carrying professional liability insurance helps to set you apart from the freelancers who are just trying to create a part-time contract job for themselves on the side. The potential client may see uninsured bookkeepers as less professional or trustworthy.

In truth, Bookkeeper Liability Insurance is reasonably priced, as business insurance goes, usually running about $400 a year for basic coverage. These are typically “claims made” policies and will have limits per claim and per policy period, with exclusions for what's actually covered. This is where you need to get the specifics from an Insurance professional. A few sources that I'm aware of that have insurance specifically for bookkeepers are…

  • Hiscox (this is the company I have used for years and like a lot)
  • Landy (insurance agency – available through bookkeeping associations, such as ICB and AIPB)
  • Insureon

Should You Bother?

My personal opinion is yes.

As mentioned, I've rarely heard of a bookkeeper being sued (especially a freelancer), and I've never had a client even threaten it to me in my more than 27 years in business. But it's a best practice to protect yourself and your clients, since the past does not always equal the future. It's a normal cost of doing business professionally.

Of course, to protect yourself from getting into real trouble, always provide high level, truly professional services. That includes abundant communication and transparency with clients.

Don't just get the bookkeeping done, but pay attention to what's going on in the business. Notify the client if anything looks suspicious (even if you're not officially responsible to do so). Use written engagement letters that define specific responsibilities for both you and the client. Document everything you do in writing with dates (workpapers, email, software permissions, etc.). Get written approvals for handling any financial transactions on behalf of your clients (such as with Accounts Payable services).

Whatever you ultimately decide, whether to get Errors & Omissions insurance or not, always provide honest, high-quality services. Happy clients keep your risk low, even when you do make a mistake. (We're human. No one is 100% accurate 100% of the time)

Do you have questions about the risks related to running a bookkeeping business? Have you had good or bad experiences in carrying professional liability insurance in your bookkeeping practice? Please comment below.

.

Freelance bookkeeper, trainer and consultant who works with internet savvy business owners and bookkeeping professionals to maximize cash flow and build true win-win relationships.

Tagged As: , , ,

13 Responses to “Do Bookkeepers Need Professional Liability Insurance?”

  • Garry on August 28, 2017

    Some very good points there – here in the UK the ICB insist on their practice licence holders having this insurance. For what it costs (for a small practice, not much) I was happy to take it out in any case.

    I have also taken out public liability insurance – it’s unlikely I’ll ever need it, but if (for example) a client comes by my house to drop off some paperwork and then trips up on my doorstep, then I know I’m covered. Again, it wasn’t a huge cost to take this out.

    • Gabrielle on August 28, 2017

      Thanks for sharing the UK requirements Garry. Very helpful to know it is quite similar on your side of the pond. 🙂

      Yes, here in the US, if one has a home-based business, to get the “public liability insurance” it is usually just a rider that is added to the homeowners insurance to cover the business activities, and is generally not expensive.

  • Joseph Lapre on August 29, 2017

    Great topic Gabrielle. I’ve had E&O coverage since day one.

    It’s a smart move especially in today’s over litigious culture. In NYC where I practice, there are plenty of potential liability traps because the so many small business are cash only & paper only establishments with high transaction volumes, so record keeping is vital and traditional reconciliations are often very difficult if there is no electronic paper trail.

    I only collaborate with service providers who carry professional insurance for these reasons alone.

    • Gabrielle on August 30, 2017

      Thanks for your comments, Joseph!

      Excellent point regarding cash-based businesses. I’m guessing those are primarily retail (such as food trucks, etc.) Yes, definite need for the insurance ‘safety net’ when serving those type of clients. I love your professional standards! Great example for us all.

  • Susan Natali on August 29, 2017

    Thanks for the info, Gabrielle, in particular for listing some carriers. I’ve been meaning to take care of this for some time…

    • Gabrielle on August 30, 2017

      Glad it’s helpful, Susan. Yes, it used to be harder to find coverage specifically for bookkeepers, but it is much easier now. The ‘bookkeeper nation’ is being recognized. 🙂

  • Helane Dollinger on August 29, 2017

    Hi Gabrielle –

    Thank you for the info and for some references. I was asked an interesting question by a client regarding insurance. I was questioned about liability in terms of something potentially going wrong with an account I would have access to in order to do his bookkeeping. The issue is once again, ‘just in case’ not really expecting anything to go wrong or to get sued – but does E&O cover this type of thing too or only ‘mistakes’.
    Thanks as always for your help and information.

    • Gabrielle on August 30, 2017

      Hi Helane – I’d wonder what kind of “something potentially going wrong” that the client is concerned with. if this is a prospective client, make sure that they are trustworthy as well. As far as what the insurance covers and does not cover, you would need to speak with the insurance agent / company AND I’d highly recommend that you read the policy and ask any questions to be sure you are clear on what is NOT covered as well. It’s possible depending on the clients you serve and / or the services you provide that being bonded may also be something to consider. Ask the insurance professional about that as well, if needed.

      • Helane Dollinger on August 30, 2017

        The question came up because the client had been ‘hacked’ and someone had gotten access to his confidential information so he had to close some accounts, etc. His concern was that if someone gained unwanted access to his financial information and money was missing or misappropriated he would be vulnerable via anyone who had legitimate access to his information. I’ve come to know him since then and he is trustworthy and also cautious. Thank you for your information and I believe I should now take your advice and speak directly with an insurance professional about any further concerns. Once again, thank you for the recommendations of where to start.

        • Gabrielle on August 31, 2017

          Thanks for the “rest of the story” Helane. Yes, I do believe there’s some kind of cyber security coverage (may need to be added onto the policy), but I don’t know much about it. After you speak with the insurance person, please let us know what he / she suggests, since this is an important point for us to be better aware of I think. Thanks for bringing it up!

  • Cindy Noelk on August 30, 2017

    Hi Gabrielle,

    This was an excellent blog! Thank you. I have E&O Insurance and Professional Liability Insurance. I had a client who was commingling his personal and business funds. Nothing I said would make him stop. I categorized them correctly (Mtg. property taxes, vacations all draws) He didn’t like that so he tried to sue me in small claims court for his past due bill that he owed me for inaccurate bookkeeping.I had an engagement letter and all the emails and texts we exchanged. I called my E&O insurance and they went to court for me and I won. You are so right. Stay professional and be completely transparent. You never know what’s going to happen.

    • Gabrielle on August 30, 2017

      Hi Cindy! Glad you enjoyed this article. Sounds like that client was a bit of a wacko (with an engineering leaning). Thanks so much for sharing your story, especially showing how the insurance protected you, along with your own excellent record-keeping. I bet the insurance company was pleased that you made their job so easy as well.

  • infocrest on September 2, 2017

    Seems very useful in bookkeeping and accounting. Thanks a lot for sharing such a great information.

Leave a Reply

Your email address will not be published. Required fields are marked *

  • November 2017
    S M T W T F S
    « Oct    
     1234
    567891011
    12131415161718
    19202122232425
    2627282930