If you're reading this, you probably have a tax preparation business. That means you're pretty darned good with numbers, so here are a few figures that might help convince you that you really need to bone up on basic business insurance for people in your profession. According to an April 15, 2014 article in The Washington Times:
- There are 3,951,104 words in the U.S. Tax Code, which is seven times the length of "War and Peace," one of the world's longest novels, and twice as long as the King James Bible and entire works of Shakespeare combined.
- In 1939, the instructions for filling out Form 1040 was two pages long. Now you have to wade through 206 pages[1]
Even if you're a speed reader, that's a lot of information to master and a lot of revisions to stay on top of. That's why, as the tax code grows, so do liability claims against tax preparers like you. Here's how to protect yourself from liability charges and other exposure risks you face.
Essential Insurance Coverage for Your Tax Preparation Business
There are 5 kinds of coverage you absolutely should consider:
1. General liability insurance.
Also called GLI or commercial general liability insurance, this is the fundamental building block of any professional insurance protection portfolio. It protects you from third-party claims that you or an employee caused physical harm or property damage to a client or someone on your premises. It also provides coverage for any harm or damage you might do while on someone else's property conducting your business. If somebody sues you, your GLI coverage will take care of legal fees, court costs and any settlements or judgments, up to the amount of your policy. Coverage is provided on a claims-made basis, meaning it only pays for incidents that happen and claims that are filed while your policy is in effect. Note that if you work from your home, your homeowners or renters insurance may not cover damages or injuries related to your business. You need a special endorsement for that.
Whether you rent your office space or own it outright, property insurance is necessary to cover damage to your physical space and all your furnishings, fixtures, equipment, inventory and supplies due to theft, vandalism, fire and high winds. If you work from your home, your standard homeowners or renters policy will set limits on certain types of losses (computer and electronic equipment, for example) and it may not be enough to replace it at today's prices. Consider an endorsement to your standard policy to protect you.
Because tax preparation is typically considered low-risk by insurance underwriters, you may be able to purchase a Business Owners Policy (BOP), which bundles GLI and PI into one package, usually at a discount over two separate policies.
4. Errors & Omissions insurance.
Also called E&O and professional liability insurance, this is essentially malpractice coverage. It protects you from mistakes and oversights you or an employee might make in the course of your professional capacity. E&O pays for legal fees, court costs, judgments and settlements.
5. Workers compensation insurance.
By law in most states, if you have full- or part-time employees, you must provide workers compensation coverage for them, which will pay for injuries they sustain on the job.
You May Also Need These Three
Depending on the size and nature of your tax preparation business, you may also want to consider these coverages:
Umbrella insurance.
It adds extra protection if a claim exceeds the limits of your GLI, PI or many other primary policies.
Cyber insurance.
Data theft and information mismanagement are growing risks for everyone, but tax preparers who deal in sensitive data and personal information like bank accounts, tax returns and Social Security numbers are especially at risk. Cyber insurance will protect you if someone hacks your system or if information is loss because your computer or files are stolen or you system crashes. It will also help pay for the things you're required by law to do if client data is compromised, including notification, credit-monitoring and other damage control.
Commercial vehicle insurance or hired/non-owned auto liability.
Your standard personal auto insurance may not cover damages or losses if it is found you were using your car for business purposes when the claim occurred. A commercial vehicle policy covers any vehicle that you use primarily for business in the event of an accident, collision with property, damage from a natural disaster, theft and vandalism. A hired/non-owned policy provides coverage for a personal vehicle used occasionally for business.
You can learn more and shop for competitive insurance quotes for your tax preparation business here.
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