Why You Need Professional Liability insurance for Accountants| |
As an accountant, you take partial responsibility for the finances of your clients. Your job is to help them manage their money in such a way that results in financial gains. If your client wins, so do you. Accountants who are good at their jobs win new clients via referrals, earn the privilege of asking for higher rates, and establish strong, long-term relationships with existing clients.
But what happens when you make an error in judgment? Mistakes happen, after all, and even as a professional financial expert, you are still only human. Still, just as you share in your client's financial gains, you share in their defeats. If your advice or decisions end up losing your clients money, you need to be prepared to face the consequences.
Those consequences can be the exact opposite of what we described above. Instead of referrals, you or your firm get bogged down with bad word of mouth. Instead of higher rates, all the bad PR might put you in a position where you need to bill lower rates to attract clients. And of course, if you lose a client too much money, they may leave.
Lawsuits and Liability: Protecting Yourself against Your Mistakes
Making a mistake with a client's money also has more extreme consequences. Namely, you could end up on the defending side of a lawsuit. Even if you don't make a clear mistake, a client can file suit against you. That means that you can follow every quality control in the book, double check your numbers two dozen times, and still be sued. In the accounting world, what you did is less important than what you have to show for it. If you can show gains, your clients will be happy. If you end up showing losses, you're in potential lawsuit territory.
Now, that's not to say that every client who loses a dime because of your work is automatically calling their lawyer to explore legal action. Some clients understand that finance is an inexact science and that they have to take the wins and the losses. However, if the loss is big enough, a client might feel like he or she has no choice but to file a lawsuit against you.
In other words, you never know what's going to happen. Even if you have positive relationships with your clients, the fact is that money can inspire some pretty extreme actions. From mistakes to unforeseen turns in the market, you are always one twist of fate away from trouble. It's essential that you do what you can to protect yourself.
Professional Liability Insurance: How It Works and Why You Need It
Luckily, there is something called professional liability insurance that accountants use to protect themselves from precisely these kinds of risks. Professional liability insurance is not just insurance for accountants—though it is a type of insurance that all accountants should carry. In fact, professional liability insurance prevails in many different industries and lines of work—often going by alternative names such as malpractice insurance or errors and omissions insurance.
Any large accounting firm is going to have a company-wide professional liability insurance policy. Independent accountants, though, often forgo professional liability insurance—not because they can't afford it, but because they don't believe they would ever get sued.
The best advice anyone can give you on this subject is not to become complacent. Even the best accountants lose every once in awhile, and even the friendliest clients have a breaking point when it comes to their money. If you do make a mistake and a client does sue you, it could jeopardize both your business and personal finances.
With professional liability insurance in place, though, you are protected from any alleged or actual professional errors. If a client decides to sue you, your policy will safeguard you and your business against the claim. Your policy should cover legal fees, court costs, and administrative expenses, as well as any court judgment or financial settlement that comes about because of the client's claim.
As with any insurance policy, you will need to decide on limits and terms. To discuss coverage for your accounting business, you should speak with a business that specializes in selling professional liability insurance. A company like Embroker—which has multiple offices throughout the country—will be able to guide you in the right direction.
Source - This article was provided by Embroker, which has multiple offices across the US. To learn more, visit Embroker.