Joe Barnard, CPA

How Much Accounting Professional Liability Coverage Should I Buy?

One of the more important decisions you make as an accountant pertains to your professional liability insurance. No matter how talented you are, you’re human and capable of making a mistake. When that happens, you’ll want to make sure you have adequate insurance coverage.

A number of factors play into how much E&O coverage you need. You’ll have to weigh all of these to determine the best plan for you and your accounting practice.

Area of Practice

Some types of accounting necessitate more coverage than others because they give rise to more or costlier malpractice claims than others. It’s also important to consider the volume of work you handle since the higher the volume, the more opportunities there are for errors and malpractice claims. An experienced accounting malpractice insurance agent can advise you on typical coverage limits within your area of practice.

Policy Limits

Policies include monetary limits that address the amount of coverage available for each claim and coverage period. Higher limits come with higher premium costs. 

It’s important to notice whether a policy you’re considering includes defense costs inside (within) the policy limit or whether defense costs are covered outside the limit, leaving your entire coverage amount available to pay settlements or judgments. This is a significant difference in how policies can be written and should greatly impact the amount of coverage you choose. 

This factor also affects the price of the coverage, as policies with defense “inside the limit” cap the potential liability for the insurance company and therefore cost less. It’s important to take the defense issue into account when comparing the cost of competing policies.

Deductibles

How much can you pay out of pocket in the event of an error? Higher deductibles come with lower premiums, but it’s important to keep your deductible low enough that you can afford the potential loss in the event a claim arises.

Extended Reporting Period Options

Also known as “tail” coverage, extended reporting period options protect you against errors that occurred during a time in which you had insurance but where the claim is filed after your policy ended. This coverage is important when you stop practicing accounting or suspend your E&O insurance for any reason, because it allows you to remain protected against claims that arise from your prior work. 

Other Considerations

Some policies also offer features such as coverage for disciplinary proceedings, subpoena response, data breach, and reimbursement for lost wages. Consider the value of such options for your firm and choose a policy that includes a mix of features that will benefit you most.

Everybody makes mistakes. Your professional liability coverage is there to make sure your business can survive them. If you’re unsure about your current policy and whether it meets your firm’s needs, the professionals at ProDefender will review your policy and, if appropriate, provide a quote for new coverage.

 

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