Updated: September 10, 2025

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Key Takeaways

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Accountants' professional liability insurance covers legal costs when clients sue over professional mistakes, errors or negligence in your services. Coverage terms, exclusions and availability vary by insurer and state regulations.

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States don't require professional liability insurance for accountants individually, but some mandate coverage when CPA firms incorporate or form LLPs.

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You'll also need cyber liability insurance, employment practices coverage and umbrella insurance to extend financial protection beyond professional liability.

How Does Professional Liability Insurance Work for Accountants?

One mistake in accounting practice triggers expensive lawsuits. Accountants' professional liability insurance provides financial protection when clients claim your services caused monetary losses from errors like missed tax deadlines, audit oversights or incorrect financial advice.

Professional liability insurance for accountants works on a claims-made basis, meaning your policy protects you when someone files claims while coverage remains active. Professional liability insurance pays for legal defense costs, settlements and court judgments up to policy limits, subject to your deductible.

Professional liability insurance typically does not have a deductible for defense costs, though settlements may be subject to policy terms and conditions.

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Do You Need It as a CPA (Certified Public Accountant)?

As a CPA, you handle more complex work than basic bookkeepers, creating additional liability exposure. Clients expect perfection from someone with your credentials. A simple tax return or financial statement error costs clients thousands and prompts litigation. CPA professional liability insurance covers situations including:

  1. 1

    Tax Preparation Errors

    Most CPA lawsuits involve tax mistakes. Your policy pays when you miss a filing deadline, claim the wrong deductions or your client gets hit with IRS penalties because of your work.

  2. 2

    Audit Negligence

    When conducting audits, you're responsible for detecting material misstatements. If creditors or third parties suffer losses due to missed errors in your audit, they can sue for substantial damages.

  3. 3

    Financial Statement Errors

    Mistakes in compiled or reviewed financial statements can lead to costly claims when clients make business decisions based on incorrect information.

Do You Need It as a Bookkeeper?

Bookkeeping involves lower risk than CPA work, but errors occur and small business clients expect you to make things right. Accountants' professional liability insurance covers you when bookkeeping errors occur:

  1. 1

    QuickBooks and Software Errors

    Accidentally deleting transactions, miscategorizing expenses or losing data during software updates creates incorrect financial statements that derail loan applications or tax filings for clients.

  2. 2

    Payroll Processing Mistakes

    Missing payroll tax deadlines, miscalculating overtime or misclassifying employees as contractors triggers IRS penalties that clients expect you to cover.

  3. 3

    Client Communication Errors

    Giving informal advice that clients act on (like suggesting certain expense deductions or recommending business structure changes) creates liability when guidance proves incorrect. Clients sue for financial losses from following your recommendations.

  4. 4

    Managing Books for Multiple Small Businesses

    Managing books for several clients simultaneously means one systematic error like using wrong tax year settings creates problems across your entire client base.

Most bookkeepers work with small business owners who depend on accurate records, from loan approvals to daily cash flow decisions. Even minor errors can have serious financial consequences.

Do You Need It as a Tax Preparer?

Only seven states currently require tax preparers to be licensed or registered (California, Maryland, New York, Oregon, Connecticut, Illinois and Nevada), and none include professional liability insurance as part of licensing requirements. However, tax preparation carries the highest risk for claims among accounting services.

Tax mistakes create immediate, measurable financial damage because tax preparers directly calculate what clients owe the IRS. When tax preparers make errors, clients face penalties, interest charges and audit costs. Accountants' professional liability insurance protects tax preparers in these situations:

  1. 1

    Filing Deadline Failures

    Missing extension deadlines, filing returns late or submitting to wrong IRS processing centers triggers substantial penalties that clients demand tax preparers reimburse.

  2. 2

    Calculation and Deduction Errors

    Missing extension deadlines, filing returns late or submitting to wrong IRS processing centers triggers substantial penalties that clients demand tax preparers reimburse.

  3. 3

    IRS Representation Issues

    When tax preparer errors trigger audits or IRS inquiries, clients expect tax preparers to handle representation and cover additional taxes or penalties from mistakes.

  4. 4

    Software and Technology Failures

    Tax software glitches, data corruption or e-filing system errors during busy season causes missed deadlines or incorrect submissions, leaving tax preparers liable for resulting penalties.

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LEARN MORE ABOUT PROFESSIONAL LIABILITY INSURANCE

Our guides on professional liability insurance offer a deeper look at costs, top providers and budget-friendly options:

State Requirements for Accountants' Professional Liability Insurance

According to our analysis of state regulations, most states don't require individual accountants to carry professional liability insurance. But if you incorporate your practice or form an LLP, that's where things get more complicated.

A few states do require accounting firms to maintain minimum coverage:

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    California

    Accounting corporations and CPA firms must have at least $100,000 per CPA for each claim (capped at $1 million) and $250,000 per CPA annually (capped at $3 million). This rule doesn’t apply to individual tax preparers. Firms can also use a shareholder guarantee agreement instead.

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    Ohio

    If you incorporate or form an LLP (but not a general partnership), you'll need $250,000 to $1 million in coverage, depending on your firm size. Solo practitioners are exempt from this requirement.

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    Massachusetts

    CPA firms must show proof of insurance or an alternative capital program when licensing, though the state doesn't publish specific dollar amounts.

State insurance requirements change frequently and vary by jurisdiction. Consult current regulations and legal counsel for your specific situation.

Is Accountants' Professional Liability Insurance Enough?

As your practice grows, so do risks that accountants’ professional liability insurance won’t cover. These coverage types helps protect you from risks beyond professional mistakes:

Your policy can cover data breaches, ransomware attacks and privacy violations, which can cost businesses millions to address.
You store client Social Security numbers, bank account information, tax records or other sensitive data that cybercriminals target.
Employment Practices Liability Insurance (EPLI)
It covers legal costs and settlements from employee-related lawsuits including discrimination, harassment, wrongful termination and failure to promote claims.
You have employees and workplace dynamics become more complex as your firm grows beyond just yourself.
Umbrella Insurance
Umbrella policies kick in when liability claims exceed your base professional liability policy limits, giving you extra financial protection.
You work with large corporate clients where a single mistake could result in claims worth millions of dollars.
This insurance covers failures in technology systems, software problems or network issues that affect your ability to serve clients properly.
Your practice relies heavily on technology systems and software failures could disrupt your operations during critical periods.
It replaces lost income when covered events like fires, floods or equipment failures shut down your operations temporarily.
You depend on your physical office space and equipment to serve clients and generate revenue consistently.
This policy protects business owners and managers from personal liability for management decisions that allegedly harm the company or its stakeholders.
You operate as a corporation or partnership and make strategic business decisions that could expose you to personal liability.

Professional Liability Insurance for Accountants: Bottom Line

Accountants' professional liability insurance protects you from client lawsuits over professional mistakes, but it's just the starting point. While states don't mandate individual coverage, your growing practice needs cyber liability, employment practices and umbrella insurance to handle more complex risks.

Accountants' Professional Liability Insurance: FAQ

MoneyGeek's experts answered common questions about professional liability insurance for accountants:

How does professional liability insurance protect accountants?

How much is professional liability insurance for accountants?

Can you give examples of professional liability claims against accountants?

Is professional liability insurance required for accountants?

How does general liability insurance differ from professional liability insurance for accountants?

Does professional liability insurance cover claims after I retire or close my practice?

About Mark Fitzpatrick

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Mark Fitzpatrick, a Licensed Property and Casualty Insurance Producer, is MoneyGeek's resident Personal Finance Expert. With over five years of experience analyzing the insurance market, he conducts original research and creates tailored content for all types of buyers. His insights have been featured in publications like CNBC, NBC News and Mashable.

Fitzpatrick holds a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He's also a five-time Jeopardy champion!

Passionate about economics and insurance, he aims to promote transparency in financial topics and empower others to make confident money decisions.

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