Well, you’ve done it! You’ve started your own accounting or bookkeeping business. Congratulations! Maybe you’ve been at this for some time now, or perhaps you are part of “The Great Resignation.” Either way, gone are the days of dreaming about working for someone else at the “big four” accounting firms, replaced by thoughts of becoming one of the big firms. (Okay, maybe you’re not that far along yet, but it can’t hurt to dream, can it?)
Whether you are just starting out with a newly established business or have been doing this for years, you may be overwhelmed by the complexities that come with small business ownership. This can be especially true when searching to find insurance policies that suit your business. The good news is that business insurance doesn’t need to be complicated. Today, we will begin to decode the U.S. business insurance world for you, allowing you to assess the value of your current coverage and start pondering whether you’ve found the right fit.
Starting Your Business
When you first started your business, you probably heard the usual list of advice: form a business entity, file for an EIN, and set up a website. (If you’re just starting out and require a comprehensive list of best practices, check out this Tax Dome blog post for more info.) While those are all great pieces of advice and undeniably necessary things you should take into consideration, here’s a question: did anyone ever mention business insurance to you?
The lack of willingness to discuss insurance is partly due to the fact that: a) few people consider business insurance a riveting topic, and b) business insurance tends to be a perplexing topic for many business owners. And this is true even for those who have been effectively running their own business for years.
So, no matter where you are in your business journey, let’s just take a moment and start plotting out what business insurance means to accounting and bookkeeping practices. That way you can consider what your business’ needs are, based on your business’ risks.
What Insurance Does My Business Need?
Just like your clients, every practice is unique in their own way. The good news is that there are some general commonalities that most accounting and bookkeeping businesses share, which makes describing the world of business insurance a bit more manageable, and creates a fundamental place to start your analysis.
The following is a step-by-step guide to the foundational business related insurance coverages that every U.S based accounting and bookkeeping business should consider:
General Liability Policy
General liability is perhaps the business insurance coverage that people are most familiar with. It is a foundational policy, the minimum any practice should consider. Essentially, general liability insurance is just what it sounds like. It provides general protection against common risks that nearly any business may encounter when engaging with the public and their clients. This type of policy mainly focuses on the risks and expenses related to the bodily injuries and property damage of others.
While more and more businesses transition to the all-digital remote operating realm, accounting is one of those industries where in-person interactions are still prevalent. Many accounting firms are still conducting business in physical locations, even if it tends to be more hybrid in nature these days. And if your business is one of them, general liability is a coverage you definitely should consider.
Perhaps you’re sitting in your company’s office at this very moment, looking around and thinking that an accident would be impossible. What’s the likelihood that any of your clients would be injured, or their property damaged, during their annual in-person tax review? But take a closer look. Any loose rugs in the office? Dim lighting? Any snow being tracked inside? What’s the average age of your clients? Accidents can—and will—happen, millions of times a year, and you certainly do not want to be caught without insurance when they do.
Business Owner’s Policy
The next step up from general liability, in terms of breadth of risk protection, is a business owner’s policy, commonly referred to as a “BOP”. A BOP is a combination coverage. It provides general liability policy offerings, with additional property protections.
Simply put. . .
General Liability + Property Liability = BOP
The additional property protections in a BOP mainly focuses on protecting your business’ property, moving beyond a general liability policy, which typically focuses on the property of others. For accounting practices, a BOP becomes important when one considers the office furniture, business equipment, and commercial property holdings of the business. If your practice has invested in these types of items, then a BOP, rather than a general liability policy, may be more appropriate for your business.
Another unique feature of a BOP is business income interruption offerings. In the chance that your practice has to temporarily close its doors due to a covered cause outlined in your policy, such as a fire, business income protections will help cover your business’ operating expenses like payroll and monthly bills, as well as, assist in replacing lost income.
So naturally, the question now becomes, does my business need a general liability policy or a BOP? Because truly, you should start with one of them. Remember, general liability is the floor. . the foundational policy. . .the minimum level of coverage for your business.
But, a general liability policy may not be enough coverage for your business’ day-to-day operations. Your practice may be ready to upgrade to a BOP if it employs multiple people, has invested in computers and other business equipment for those employees, or owns the building it operates out of. If your risks are broader, then so too should be your policy selection.
Professional Liability Policy
After you’ve selected a policy to cover your everyday business exposures, as outlined above, it’s time to address those risks inherent to tax preparation, bookkeeping, and accounting professions themselves. Professional liability insurance, also referred to as errors and omissions insurance or E&O insurance, protects you and your practice against claims of inaccuracy, omissions, or misrepresentation. When the expertise and skill of you and your employees is your business, an E&O policy should be highly considered.
A professional liability policy may provide protections not only in drastic scenarios, such as lawsuits arising out of mathematical errors, but also, from the risks of client dissatisfaction, namely, issues surrounding missed deadlines or inaccurate projections. To believe that you or anyone in your practice is impervious to mistakes is wishful thinking. Even if you, or someone on your team, makes an unintentional mistake, it doesn’t change the fact that your clients may have the right to sue you for damages they incurred.
But wait, isn’t this all addressed under general liability insurance? Why is liability getting mentioned again? Is there a difference between general liability insurance and professional liability insurance?
So glad you were paying attention! Here’s the key. General liability insurance addresses physical risks, such as bodily injuries to others. A general liability insurance policy is not typically designed to protect against the risks associated with performing your professional services.
There are two different types of liability at play here, and as such, to fully address the risks of your practice, a layered approach is advisable. General liability or a BOP for everyday practice risks, in addition, professional liability coverage to protect against the specialized exposures of your chosen profession.
That’s a Lot of Insurance: How Much Does Business Insurance Cost?
As mentioned, every industry and every unique business in that industry has different needs, which in hand, creates individualized price tags for insurance packages. Yet, let’s take a moment to address a few common factors in the pricing of insurance coverages and provide typical costs of the policy types described above.
Factors In Pricing
First, the size of your company plays a role in determining what these insurance premiums will cost. It’s seemingly straightforward: the more people you have working for you, the more business generated, and therefore, the more risk exposures, whether professional or physical, are created.
Also, the physical location of your practice and the types of services performed are also important factors. As you might have guessed, firms located in coastal cities like San Diego or Boston likely cost more to insure than firms residing further inland. As for services, if your practice provides tax advice for companies on the S&P 500, with their numerous regulatory requirements, rather than servicing small business owners or private citizens, the risk exposures and the likelihood of claims, increases.
In addition, your business’s history of claims may have an effect on your premium costs. Let’s use car insurance as an example. If a person has a history of auto accidents, that person should expect to pay higher premiums because auto insurance providers classify them as high-risk. If your business has a history of lawsuits, you can expect a similar scenario for the pricing on your business insurance.
At the same time, if you want to have the most comprehensive insurance impossible with higher limits, you will pay more. Again, from an insurance provider’s standpoint, it’s seemingly straightforward: the greater the potential for them having to pay out large sums of monies, the higher your cost will be.
Typical Business Insurance Pricing
Now, if you really want to get into the nitty-gritty on the costs of business insurance, check out our Gild Insurance FAQ page. But here, let’s at least outline a bit of information.
First up, general liability. So, how much is general liability insurance? According to our partner insurance providers, as well as, based on the coverage selections of Gild Insurance Community, general liability insurance typically costs between $300 and $500 annually. Costs will increase with riskier professions, such as construction.
If you select a BOP rather than a general liability policy, the pricing will likely increase. This is typically attributable to the added property protections. So, how much is business owner’s insurance? Generally for selections made by the Gild Insurance Community, prices are usually between $500 to $1,000 annually.
Now, for our last policy type, professional liability insurance. How much is professional liability insurance? Based on information from our insurance providers and choices made by the Gild Insurance Community, professional liability policies typically start around $1,000 annually.
Yay, Insurance! Now, What Do I Do?
If you’re shopping for an insurance policy, finding the right one is almost as tricky as buying a new home. There are so many companies to choose from that the deciding factor often comes down to sheer exhaustion rather than settling on a company that is the best fit. The good news is that this doesn’t need to be your experience.
Insurance may not be the most exciting topic (and that’s coming from people who work in the industry), but at the very least, finding the right insurance can be a more pleasant experience. Head to our site and meet Gildber (that’s our adorable husky digital assistant). He’ll help get you started with personalized information that you can then use to take your business to the next level. If you want a visual of the world of business insurance to add to your decoding skills beyond this blog post, including what other coverages may be important for your accounting or bookkeeping practice, check out the Gild Insurance Business Insurance Map on the Gild Insurance site.
We’ll see you there!
- Boop, Gregory. “Do I Have to Buy Workers Compensation Insurance?” The Balance Small Business. The Balance Small Business, December 19, 2019. https://www.thebalancesmb.com/how-does-workers-compensation-operate-in-my-state-462786#:~:text=Texas%20and%20Oklahoma,are%20obligated%20to%20buy%20insurance.).
- “Safety Topics”, National Safety Council, Accessed August 5, 2022. https://www.nsc.org/work-safety/safety-topics/slips-trips-falls
- “Business Owners Playbook”, The Hartford, Accessed, August 5, 2022. https://www.thehartford.com/sites/playbook/smallbusiness/files/DemystifyingInsurance.pdf
- Frankenfield, Jake. “Errors and Omissions Insurance (E&O).” Investopedia. Investopedia, June 29, 2022. https://www.investopedia.com/terms/e/errors-omissions-insurance.asp.
- “Professional Liability Insurance | the Hartford.” Accessed August 5, 2022. https://www.thehartford.com/professional-liability-insurance.
- “General Liability For Accountants.” Accessed August 5, 2022. https://www.hiscox.com/small-business-insurance/professional-business-insurance/accountant-insurance
- “What Is a Businessowners Policy (BOP).” Nationwide. Accessed August 5, 2022. https://www.nationwide.com/lc/resources/small-business/articles/what-is-a-business-owners-policy.