Crunching numbers and helping your clients with their accounting queries is all in a day’s work as an accountant. But even with all the years of experience, training and education, mistakes can happen when you least expect them. While there are many types of accounting insurances on the market, Professional Indemnity insurance* is something to consider when looking at ways to protect your accounting business with business insurance.
What is Professional Indemnity insurance?
In a nutshell Professional Indemnity insurance (PI) insurance is an important form of protection for businesses that provide specialist services or professional advice. It is designed to respond to claims against your business for losses as a result of actual or alleged negligent acts or omissions in the provision of your professional service or advice. PI Insurance will also assist with the legal costs associated with responding to or managing claims which are covered by the policy.
Why accountants might consider Professional Indemnity insurance for their business?
Even when you take the upmost care and responsibility with your accounting business, accidents, mistakes and errors may still occur. These are some examples of when a client may make a claim against you:
- Incorrect tax advice / tax preparation
- Late lodgement of returns
- Negligence in rendering professional services
- Incorrect analysis and interpretation of the numerical data
- Failure to fully comply with audit undertaking
The result of a claim can have a significant impact on your accounting business not only financially but also for your reputation. Something no small business owners wants to be faced with.
What does Professional Indemnity insurance typically cover?
These are some of the things your Professional Indemnity insurance policy typically provides coverage for:
- Damages and claimant costs awarded against the insured
- Legal and defence costs
- Claims investigation costs
- Inquiry attendance costs
- Public relations costs
What Professional Indemnity insurance typically does not provide cover for?
These are some of the events that are typically not covered by a Professional Indemnity insurance policy.
- Intentional damage
- Known claims and circumstances
- Fraud and dishonesty
- Bodily injury / property damage
Factors to think about when calculating the level of Professional Indemnity insurance coverage for your accounting business
There’s no one size fits all accounting insurance policy, with each and every accounting business being unique with its own level of risk and needs. These are some questions which might help when trying to calculate your level of accounting Professional Indemnity insurance coverage.
- Do you have any legal requirements in the accounting industry which stipulate a certain level of Professional Indemnity insurance must be held?
- Are you a member of a professional accounting body or accounting association with a specified requirement to hold Professional Indemnity insurance?
- Do any of your work contracts indicate that you must hold a certain level of Professional Indemnity insurance?
- What is the cost of the jobs that you perform?
- Take some time to identify any potential risks that might impact your business and what are the potential costs to resolve any mistakes?
- What would the legal and investigation costs add up to if any action was taken against you?
Factors that may impact the cost of a Professional Indemnity insurance policy
It’s a bit difficult to provide an exact cost as to what your Professional Indemnity policy may cost, but there are several factors that need to be taken into consideration when calculating the premium. These may include:
- The type of accounting work you perform
- The geographical location of your business
- The size of your business and annual turnover
- Who is being covered by the policy and their qualifications
- How much cover you need (or want) to have
- Your Professional Indemnity history of claims
The insured individual provides accounting services and they were contracted to provide auditing services for their client. The client discovered that the insured bookkeeper was actually concealing trust money and diverting funds from the trust. The client brought a claim against the insured alleging that they had failed to identify missing monies in their discovery.
The client was warded $50 000 and the insured bookkeeper incurred $40 000 in legal costs.^
There are a variety of different types of accounting business insurance options on the market when it comes to protecting your business. Professional Indemnity insurance doesn’t need to be a complicated or difficult policy to understand when it comes to getting coverage for your accounting business.
At BizCover, we like to keep the insurance process free from drama, saving you time from shopping around looking for quotes for your business insurance.
Visit bizcover.co.nz and get insurance for your sole trader business without drama so you can get on with your day. If you’d prefer to pick up the phone and chat you can find us at 0800 249 268.
*This information is general only and does not take into account your objectives, financial situation or needs. It should not be relied upon as advice. As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording. © 2023 BizCover Limited.
^The provision of the claims examples are for illustrative purposes only and should not be seen as an indication as to how any potential claim will be assessed or accepted. Coverage for claims on the policy will be determined by the insurer, not BizCover.