Q: I just started my own tax prep business — what insurance do I need?
A: Say you've just finished a course that taught you to how to become a tax preparer. You've just set up your home office, and you're ready to help clients file their 1040s. While you're familiar with the concept of small business insurance, you're not sure how it works or which policies you need.
Small business insurance protects financial firms from the cost of lawsuits, property damage, and other business risks. Let's look at recommended insurance policies for the typical home-based tax prep business:
- General Liability Insurance. Commonly called slip-and-fall insurance, GL can pay for the cost of many common third-party injury and accident lawsuits, including bodily injury, property damage, reputational injury, and a few other basic business liabilities. If you're sued, GL Insurance can pay for your lawyers' fees, court costs, and damages.
- Professional Liability Insurance. Professional Liability (also called Errors and Omissions) is a must-have for accountants and financial service professionals. PL Insurance pays for lawsuits when a client alleges you've made an error in your work. Covered lawsuits include misfiling, inaccuracies, tax prep errors, and bad financial advice.
- Cyber Liability Insurance. If your business is hacked, your payment systems is breached, or you accidentally leak client financial records online, Cyber Liability Insurance can pay for many of the costs of a security breach. This policy covers the cost of investigating cyber attacks, notifying affected customers, and credit monitoring for clients. To learn more about your cyber liability, see "How do I protect against data breaches?"
- Property Insurance / Business Owner's Policy. You may or may not need Property Insurance. For most home-based business owners, it's cheaper for you to "self-insure" your property. By maintaining enough savings to replace or repair your computers and other commercial property, you may be able to self-insure and avoid having to pay insurance premiums. However, if you have enough commercial equipment and property that you'd prefer to have a Property Insurance policy, see if you can sign up for a Business Owner's Policy. BOPs bundle General Liability and Property together at a lower cost.