Accountants' Professional Liability Insurance

Accountants' professional liability insurance pays for your defense costs and settlements when clients say your services caused them financial harm.

Discover affordable professional liability insurance quotes below.

By Mark Fitzpatrick

Updated: August 11, 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.

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

One mistake in your accounting practice could trigger an expensive lawsuit, even if you've been diligent for years. Accountants' professional liability insurance provides financial protection when clients claim your services caused them 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, which means your policy protects you when someone files a claim while it's active, even if the mistake happened earlier. It pays for legal defense costs, settlements and court judgments up to your policy limits, subject to your deductible, protecting your business finances when clients sue you for alleged professional mistakes.

Do You Need It As A CPA (Certified Public Accountant)?

As a CPA, you handle more complex work than basic bookkeepers, which means more ways things can go wrong. Clients expect perfection from someone with your credentials. A simple tax return or financial statement error could cost them thousands and prompt them to sue you. CPA professional liability insurance covers situations like these:

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
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
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 mistakes still happen, and small business clients expect you to make things right. Accountants' professional liability insurance covers you when these occur:

1
QuickBooks and Software Errors
Say you accidentally delete transactions, miscategorize expenses or lose data during software updates. Clients face incorrect financial statements that can derail loan applications or tax filings.
2
Payroll Processing Mistakes
Missing payroll tax deadlines, miscalculating overtime or misclassifying employees as contractors can trigger IRS penalties that clients expect you to cover.
3
Client Communication Errors
When you give informal advice that clients act on, like suggesting they can deduct certain expenses or recommending business structure changes, and it turns out to be wrong, clients can sue for the financial losses that result from following your guidance.
4
Managing Books for Multiple Small Businesses
Managing books for several clients simultaneously means that one systematic error (like using the wrong tax year settings) could create 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 those licensing requirements. However, tax preparation carries the highest risk for claims among accounting services.

Tax mistakes create immediate, measurable financial damage for clients because you're directly responsible for calculating what clients owe the IRS. When you get it wrong, clients face real penalties, interest charges and audit costs they expect you to cover. Accountants' professional liability insurance protects you in these situations:

1
Filing Deadline Failures
Missing extension deadlines, filing returns late or submitting to the wrong IRS processing center can trigger substantial penalties that clients will demand you reimburse.
2
Calculation and Deduction Errors
Miscalculating taxes owed, claiming improper deductions or using the wrong filing status can result in IRS assessments, penalties, and interest that clients hold you responsible for covering.
3
IRS Representation Issues
When your errors trigger audits or IRS inquiries, clients expect you to handle the representation and cover any additional taxes or penalties that result from your mistakes.
4
Software and Technology Failures
Tax software glitches, data corruption or e-filing system errors during the busy season can cause missed deadlines or incorrect submissions, leaving you liable for resulting penalties.

LEARN MORE ABOUT PROFESSIONAL LIABILITY INSURANCE

Explore our guides on professional liability insurance for a deeper look at costs, top providers and budget-friendly options:

State Requirements for Accountants' Professional Liability Insurance

Most states won't require you personally to carry professional liability insurance to keep your CPA license active. However, 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 in professional liability coverage 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.

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:


Cyber Liability Insurance	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.
Technology Errors & Omissions (Tech E&O)	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.
Business Interruption Insurance	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.
Directors & Officers (D&O) Insurance	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

We've answered the most important frequently asked questions about professional liability insurance for accountants to help you see how it works:

How does professional liability insurance protect accountants?

It protects you financially if a client claims you made an error or gave bad advice. It can cover legal defense, settlements and judgments tied to mistakes like miscalculations, missed deadlines or compliance oversights, even if you acted in good faith.

How much is professional liability insurance for accountants?

Premiums vary based on your services, annual revenue, staff size and risk profile. For example, firms that handle complex audits may pay more than those focused on basic bookkeeping. Maintaining a clean claims record can also help reduce your business insurance costs.

Can you give examples of professional liability claims against accountants?

Yes. Common examples include filing errors that lead to tax penalties, missed financial report deadlines or incorrect audit valuations. Even small oversights can result in expensive disputes. Your policy helps pay for the cost of defending and resolving these claims.

Is professional liability insurance required for accountants?

Most states don't legally require professional liability insurance for accountants, but some clients may make it a condition of doing business. It's best to have coverage, since even minor mistakes can lead to costly legal claims and financial risk for your practice.

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

Professional liability insurance covers financial harm from professional mistakes or negligence. General liability helps with claims involving bodily injury or damage to someone else's property, such as a client getting hurt at your office. Many accounting businesses carry both types to protect against more risks.

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

If you have an extended reporting period (tail coverage) on your policy, it can. Tail coverage allows you to report claims made after your coverage ends, protecting you from disputes that arise from work completed before retirement or 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!

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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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.

Accountants' Professional Liability Insurance

Key Takeaways

How Does Professional Liability Insurance Work For Accountants

Compare Small business Insurance Rates

Do You Need It As A CPA (Certified Public Accountant)?

Tax Preparation Errors

Audit Negligence

Financial Statement Errors

Do You Need It As A Bookkeeper?

QuickBooks and Software Errors

Payroll Processing Mistakes

Client Communication Errors

Managing Books for Multiple Small Businesses