E&O insurance for bookkeepers: A breakdown

Bookkeeping is a riskier job than you might think, which is why it’s crucial to invest in insurance to mitigate risk. There are several different insurance policies that bookkeepers could benefit from, but errors and omissions (E&O) insurance is one of the most important. 

In this article, we’ll cover everything you need to know about E&O insurance for bookkeepers, including what it is, what it covers, how much it costs, and some of the benefits of the policy.

What is errors and omissions insurance?

First, let’s define what an errors and omissions insurance policy is. Also referred to as E&O insurance, malpractice insurance, or professional liability insurance, this coverage protects professional service providers (accountants, lawyers, doctors, bookkeepers, etc.) from unintentional mistakes or errors.

E&O insurance is especially important for bookkeepers, as one simple mistake can have major consequences. No matter how careful you are, the unfortunate fact of life is that any error or omission you make could result in a lawsuit — especially since you’re dealing with people’s money.

When you purchase an errors and omissions policy, you help cover your business in the event of an unplanned mishap. It’s insurance that keeps you and your company protected from civil lawsuits for negligence, common mistakes, omissions, and misrepresentation claims.

When it comes to E&O insurance for bookkeepers, though, you’ll need a few more details.

What bookkeeper’s E&O insurance covers

We have established that E&O insurance for bookkeepers covers professional mistakes and errors, but let’s take a look at some specific situations in which the policy could protect your company.

• Missed filing deadlines: Failing to file a client’s financial documents on time can result in fines or other consequences.
• Miscalculating client taxes: If a calculation error leads to a client underpaying taxes, the IRS may charge the client penalties, leading to an E&O claim.
• Data entry errors: Mistakenly recording incorrect financial data that causes financial losses for the client can lead to a lawsuit, which would likely be covered by an E&O policy.
• Alleged breach of contract: If a client claims you failed to deliver the agreed-upon bookkeeping services, E&O insurance could cover the legal defense and potential settlement costs.

What bookkeeper’s E&O insurance doesn’t cover

E&O insurance for bookkeepers can be a lifeline in the event of a professional liability claim, but there are certainly some exclusions to consider.

• Intentional misconduct: Claims stemming from fraud, dishonesty, or other willful misconduct are generally excluded from coverage.

• Claims covered by other insurance policies: Your claim will likely be denied if it’s for a situation generally covered by another insurance policy. For example, E&O policies do not cover cyberattacks, personal injury claims, property damage, or employment-related claims, such as harassment — these are all included in other types of insurance coverage.

Why do bookkeepers need E&O insurance?

A day in the life of a bookkeeper is a busy one. You’re organizing and storing clients’ financial records, cash flow statements, bank reconciliations, loss statements, and other money matters in between. As a bookkeeper, you help businesses keep their finances in order by managing their accounts and transactions. But, have you ever wondered what might happen if you lost this sensitive information, made a simple error, or forgot to file an important document on time?

The legal fees and settlements that could result from an errors and omissions lawsuit can be especially damaging. Let’s take a look at some of the main reasons that bookkeepers need E&O insurance.

Protects you from professional mistakes

Errors and omissions insurance will help protect your bookkeeping business from a lawsuit alleging that you or your company made a mistake. Perhaps you lost a client’s financial records in an office move or forgot to file an extension for a mandated tax audit. 

E&O insurance for bookkeepers would cover the legal defense costs and settlements if you’re accused of errors in providing your professional services.

It’s worth noting that this policy will only cover unintentional errors. Intentionally misleading a client is not included in this coverage. 

Quick Tip: Keep a record of any client agreements, Statement of Work (SOW) documents, and transactions made so that you can prove any misunderstanding or mistake was not made on purpose. It’s not a “get out of jail free card,” but can be solid security for honest mistakes.

Helps manage and mitigate risk

If you are doing business with the constant fear of making a costly mistake, it can make it very difficult to thrive as a bookkeeper and take on more clients. E&O coverage can give you the peace of mind you need to do what you do best: Help clients manage their business finances. You’ll spend less time worrying about the consequences of a potential lawsuit and more time actually serving your clientele.

Avoiding financial and emotional strain

If you don’t have an E&O insurance for bookkeepers policy in place, you and your company will be liable for whatever settlement cost is determined — not to mention legal fees to defend yourself. Beyond that, you’ll need to spend time on your defense and can lose opportunities to work with other clients as a result. Plus, as if making a mistake and having to pay for it wasn’t bad enough, not having any support throughout the retribution process can be downright soul-crushing. In many cases, E&O insurance for bookkeepers will provide you with legal defense and counsel — and having that kind of help throughout the litigation process can make all of the difference. 

Where and how to get E&O insurance for bookkeepers

Are you ready to purchase E&O insurance and protect your bookkeeping business from professional liability claims? The good news is that purchasing the policy is pretty easy to do.

The best way to secure a good E&O policy is to contact a credible insurance broker. That said, not all policies are created equal. Additionally, it’s a good idea to go with a broker that offers custom insurance plans. This way, you can bundle E&O insurance with various other policies you need to get the most comprehensive plan. Additionally, when you purchase an insurance policy bundle, you’ll often get a better price when compared to purchasing multiple policies separately.

For example, Embroker offers a package of insurance policies for financial services professionals. This suite of policies is perfect for bookkeepers, and includes E&O insurance as well as general liability, cyber liability coverage, and more.

How much does E&O insurance for bookkeepers cost?

There’s no foolproof answer to help determine the exact cost of an errors and omissions insurance policy for bookkeepers. A number of factors affect the overall cost of the policy, including your industry, coverage limits, the size of your company, and any prior claims. That said, most bookkeepers pay between $30 and $70 per month for professional liability coverage.

Other important insurance coverages for bookkeepers

E&O insurance for bookkeepers is a must-have policy. But, you’ll also want to consider obtaining some of these other kinds of insurance policies for bookkeepers too: 

• Business owner’s policy: This is generally the first type of insurance business owners invest in. It’s a cost-effective package that combines general liability insurance, commercial property insurance, and business interruption insurance — making it easier and more convenient to protect your business.
• Commercial auto insurance: This policy covers vehicles used for business purposes, including for work-related travel (for consultations, sales pitches, etc.). It protects your company against financial losses resulting from auto accidents, theft, vandalism, and certain weather events.
• Workers’ compensation: Another insurance policy you’ll want to have if you run your own bookkeeping business and have multiple employees. Workers’ compensation insurance will cover the costs you are legally required to pay if an employee gets sick or injured while at work — or while traveling for work-related reasons. In most states, workers’ compensation insurance is a legal requirement if you have employees.
• Cyber liability insurance: Cyberattacks are becoming more common and causing more damage with every new year. As a bookkeeper, you work with sensitive financial information, so you should consider obtaining cyber liability insurance to protect you in the case of a data breach or cyber incident. If you work with sensitive financial records digitally, cyber liability insurance is a no-brainer, as it transfers the financial risk to a third party.

Safeguard your bookkeeping business with E&O insurance

Mistakes happen, but with the right insurance, they don’t have to define your future. Armed with a comprehensive E&O policy, you can protect your bookkeeping business from possible claims and continue doing business without the constant worry of damaging claims.

Apply online with Embroker today and get a quote for E&O insurance for bookkeepers in just a few minutes.