Insurance for Bookkeepers: An Easy Guide
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Insurance for bookkeepers is much more important than you think.
When it comes to the business world, bookkeepers provide a vital service. Whether handling a company’s payroll, paying vendors, creating and maintaining financial records, or reviewing transitions, bookkeepers play a leading role in a business’s success and growth.
But the essential services that bookkeepers provide also expose them to various risks. That’s why they must protect themselves with insurance for bookkeepers. Because just like you wouldn’t go on a road trip without insuring your vehicle of choice, you shouldn’t provide professional services without business insurance. It’s just not worth it.
And, just because you have insurance, doesn’t mean that it’s the right fit for your business, or your industry.
Even if you don’t think your clients would ever sue you, insurance for bookkeepers is there to protect you from the unexpected. A simple miscalculation that results in a client losing money could lead to a claim against you for financial damages. But having business insurance can help ensure a mistake doesn’t compromise your bookkeeping business.
With that in mind, we’ve put together this Insurance for Bookkeepers Guide with all the information you need to know about getting insurance for your business.
Insurance for Bookkeepers: Do You Need It?
We’ll cut to the chase: the answer is a resounding yes. Even if you aren’t committing intentional and open fraud or embezzling money, accusations can fly and easily lead to expensive law suits.
If you’re starting your bookkeeping business or working as a bookkeeper on a freelance basis, you may think that you don’t need to worry about insurance and that it’s not worth the cost. But not having bookkeeper insurance leaves your business vulnerable to potential claims. A simple miscalculation could have drastic financial consequences for your bookkeeping business if you don’t have the right coverage in the right places.
Realistically, any business – whether you’re a sole proprietor or an LLC – providing services for a fee should have protection in the form of insurance.
Plus, having insurance offers more benefits than just protection against potential claims. It also gives new clients peace of mind. If you want to grow your clientele, being transparent and upfront about insurance can be a definite advantage.
For example, if you’re hit with a lawsuit or are accused of malpractice or error by a client, your other clientele don’t need to worry that your business might go under, or that they might lose money. In events like these, proper bookkeeper’s insurance can keep your business afloat.
If you provide bookkeeping services digitally, you may think, ‘I won’t need insurance if I work exclusively online.’ But think again. Having an online business won’t protect you from potential claims of negligence or omissions and could expose you to other risks from hackers.
When Should Bookkeepers Get Insured?
Ideally, it’s best to have insurance in place when setting up your bookkeeping business before you’ve even worked with your first client. If that’s just not feasible, you’ll want to prioritize finding the right insurance provider as soon as possible.
One of the reasons for having insurance before you work with your first client is that you could potentially be held liable for advice you provide during a preliminary or informal consultation. Having insurance early on will help ensure your bookkeeping business isn’t derailed before it even gets off the ground.
Assessing Your Risks
Assessing your business’s risks can not only help determine the type of insurance you need, but it can also help to identify any vulnerabilities your business faces.
Take some time to identify internal and external risks specific to your business. Once you’ve identified any potential business risks, categorize them based on the effect each risk could bring to your business. Then outline any contingency plans or controls for key risk scenarios. Make sure to also periodically review your risks and monitor for any new ones which can pop up at any time.
And don’t skip this step just because you’re a bookkeeper working from a home office without any employees. Any business, no matter the size, has risks, and knowing about them in advance is vital for being able to react and respond.
How do you handle risk?
Take our Risk Archetype Quiz to find out if your risk mitigation strategies are helping your business thrive, survive, or otherwise.
What is the Best Insurance for Bookkeepers?
No two businesses are exactly alike. But while not every bookkeeping business will have the same needs, there are some core insurance policies that most bookkeepers should consider purchasing.
Professional Liability Insurance for Bookkeepers
Professional liability insurance, also known as errors & omissions (E&O) insurance, is hands down the most essential policy for any bookkeeper.
Even the most vigilant bookkeeper is likely to make a mistake at some point. It happens. What you don’t want is for an error to cost you financially. And that’s precisely what professional liability insurance does; it protects your company’s bottom line by covering for financial risks so that you can continue to provide bookkeeping services for your clients without fear of an accidental misstep costing you a significant amount of money. Or, worse, shuttering your business.
In addition to covering damages your client incurs due to a bookkeeping error, if a client sues you (or one of your employees), professional liability insurance will provide financial protection and pay for defense costs regardless of whether you win or lose the case. And if you do lose the case or reach a settlement agreement, this policy may also cover those expenses.
Keep in mind that even if you’re a part-time bookkeeper working out of a home office, you can still be exposed to costly charges by a client who thinks you have steered them wrong. That’s why it’s crucial for anyone providing any bookkeeping services to have professional liability insurance.
Cyber Liability Insurance for Bookkeepers
In today’s digital world, most business is done online. And bookkeepers are no exception.
While exchanging information online with clients may be commonplace, as a bookkeeper, it’s your responsibility to protect your clients’ confidential information from the risk of a data breach. Any business that stores customer data – such as names, credit card information, addresses, bank account information, and more – has a regulatory obligation to keep that data secure. So it’s not surprising that cyber liability insurance is another must-have policy for bookkeeping businesses (and really any business).
While prevention is the best defense against cyber attacks, cybercriminals are, unfortunately, crafty and constantly find new ways to access a company’s database. Suppose cybercriminals access your data and steal confidential client information. In that case, a cyber liability insurance policy will typically take care of investigating the incident, notifying those affected, credit monitoring for victims, civil damages, and PR services if your business experiences reputational damage.
It’s important to point out that professional liability is not a substitute for cyber liability insurance and will not provide the same protection for a cyber attack. Just another reason to ensure that you get insurance for bookkeepers, not for just anyone.
General Liability Insurance for Bookkeepers
While professional liability insurance covers financial damages, general liability insurance protects your business in the event of physical or property damages. Any business that deals with or employs people in some way should have commercial general liability insurance.
General liability insurance covers third-party claims resulting from injuries or property damage. It also covers damages caused by slander, libel, and copyright infringement.
Employee Coverage
If you have employees, you’ll need workers’ compensation insurance (it’s mandatory in every state except Texas) and employment practices liability insurance (EPLI), which will protect your bookkeeping business from employee-related claims such as discrimination and wrongful termination. You may also want to look into employee dishonesty coverage, which will protect your business from financial damage due to criminal acts committed by your employees, including theft and fraud.
And if you don’t have any employees yet, but plan to hire people in the future, keep these policies in mind and purchase them before you land your first hire.
What is the Cost of Insurance for Bookkeepers?
We get that cost is often a main consideration when purchasing business insurance. While there isn’t a simple answer about how much insurance for bookkeepers will be, certain factors can help give you an initial idea of what you might pay. These factors include:
Size of your business
Simply put, more employees means you’ll need to pay more to insure them all.
The clients you work with
An insurance provider will likely ask you about the types of clients you work with (or plan to work with). That’s because if your business is doing bookkeeping for large companies, the premiums will be higher than a bookkeeper who works exclusively with small businesses.
Revenue
When shopping around for insurance for bookkeepers, be sure to have your revenue from at least the last three years on hand. An insurance provider may also ask how much revenue comes in from your biggest client. This is an important factor because the more income your business brings in, the more potential risks your business faces.
And if you’re just starting out and don’t have any revenue yet, don’t worry. Just inform any insurers you get a quote from that your business is just getting started.
Location
You may be wondering what location has to do with your bookkeeping business. Businesses (of any type) located in large cities, like New York City, Chicago, or San Francisco, will pay higher insurance premiums than those living in less populated municipalities.
How much insurance you need
It’s pretty obvious that the more insurance you need, the more you’ll pay. You’ll want to carefully discuss insurance needs and limits with any insurance provider to ensure you have adequate protection without overpaying.
Previous claims
Unsurprisingly, a business’s claims history is a major contributing factor to insurance costs. A company with a long history of costly claims will have to pay more for insurance than a business that has never had a claim.
If you’re already insured and looking to switch providers, one of the easiest ways to provide this information to a potential new insurer is by requesting a loss run report. To get a loss run report, all you need to do is contact your current insurance provider and ask for one. It’s that easy.
This isn’t an exhaustive list of factors, so don’t be surprised if you’re asked additional questions about how your business operates and how you interact with clients, such as whether you use contracts for every client you work with (which you absolutely should).
And remember, there’s no harm in shopping around to find the right insurance provider at the right price for your business.
Once you’ve signed with an insurance provider, make a note of the policy’s end of term date and put a reminder in your calendar to review your coverage before that date.
As a business grows, it’s common to require policy changes to meet needs. For example, if you’ve opened up an office space or have significantly increased your revenue, your insurance will require updating to cover those elements. The only way insurance for bookkeepers can provide appropriate protection is by reflecting the needs of your business, so don’t hesitate reaching out to your insurance provider to discuss any changes.
If a claim is filed against you after you’ve purchased insurance, the first step is to take a deep breath. Then contact your insurance provider. They will be able to explain the process to you, review your coverage, let you know what information to gather, and walk you through the next steps.
Having a claim filed against your business can be alarming and stressful, but know that once you have business insurance, you won’t have to figure out how to deal with claims alone. That’s what your insurance provider is there for.
Remember that mistakes are part of life and will happen, but there’s no need to let them jeopardize your business. Having insurance for bookkeepers will help you can focus on helping your clients and growing your business.
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