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. The policy works on a claims-made basis, covering claims filed while your coverage is active. It pays for legal defense costs, settlements and court judgments up to policy limits. Your deductible may apply to defense costs, settlements or both depending on your policy structure.
Accountants' Professional Liability Insurance
Accountants' professional liability insurance pays for your defense costs and settlements when clients say your services caused them financial harm.
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Updated: October 27, 2025
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Key Takeaways
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.
States don't require professional liability insurance for accountants individually, but some mandate coverage when CPA firms incorporate or form LLPs.
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?
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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:
- 1Tax 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.
- 2Audit 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.
- 3Financial 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:
- 1QuickBooks 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.
- 2Payroll Processing Mistakes
Missing payroll tax deadlines, miscalculating overtime or misclassifying employees as contractors triggers IRS penalties that clients expect you to cover.
- 3Client 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.
- 4Managing 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:
- 1Filing Deadline Failures
Missing extension deadlines, filing returns late or submitting to wrong IRS processing centers triggers substantial penalties that clients demand tax preparers reimburse.
- 2Calculation 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.
- 3IRS 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.
- 4Software 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.
LEARN MORE ABOUT PROFESSIONAL LIABILITY INSURANCE
If you're shopping for professional liability insurance for your accounting practice, these guides help you understand the coverage, compare it to other policies and find affordable 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:
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.
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.
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. | |
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 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?
Professional liability insurance protects accountants financially when clients claim errors or incorrect advice occurred. Professional liability coverage pays for legal defense, settlements and judgments from mistakes like miscalculations, missed deadlines or compliance oversights, even when accountants acted in good faith.
How much is professional liability insurance for accountants?
Premiums vary based on services offered, annual revenue, staff size and risk profile. Firms handling complex audits pay more than those focused on basic bookkeeping. Maintaining clean claims records helps reduce business insurance costs.
Is professional liability insurance required for accountants?
Most states don't legally require professional liability insurance for accountants, but clients often make coverage a business requirement. Professional liability insurance protects against costly legal claims and financial risk from minor mistakes.
How does general liability insurance differ from professional liability insurance for accountants?
Understanding general liability vs. professional liability helps you protect your accounting business properly. Professional liability covers financial harm from professional mistakes or negligence, while general liability covers bodily injury or property damage claims, such as clients getting injured at your office. Many accounting businesses carry both types for comprehensive protection.
Does professional liability insurance cover claims after I retire or close my practice?
Extended reporting period coverage (tail coverage) allows you to report claims made after coverage ends, protecting you from disputes arising from work completed before retirement or practice closure.
About Mark Fitzpatrick
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!
He writes about economics and insurance, breaking down complex topics so people know what they're buying.
sources
- California Board of Accountancy. "Cal. Code Regs. Tit. 16, § 75.8 - Security for Claims Against an Accountancy Corporation." Accessed August 8, 2025.
- Massachusetts.gov. "CPA Firm Types and Application Requirements." Accessed August 8, 2025.
- Ohio Laws. "Rule 4701-13-03 - Ohio Administrative Code." Accessed August 8, 2025.