Bookkeeping Insurance Coverage Overview

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What is a Bookkeeper?

According to the Canadian Bookkeepers Association, a Bookkeeper can be defined as the following;

One who maintains complete sets of books, keeps records of accounts, verifies the procedures used for recording financial transactions, and provides professional bookkeeping services. The term bookkeeper refers to a person who can complete a full set of books up to and including a trial balance.

Some of the common duties performed by a bookkeeper might include calculating and preparing cheques for payroll, supplier invoices, government remittances, completing and/or submitting tax remittance forms, setting up and maintaining financial records, and posting journal entries, just to name a few.

What Does Bookkeeper Insurance Cover?

Bookkeeper Insurance is tailored to the unique needs and exposures of bookkeeping. Even the best bookkeeper can make an error, miscalculation or omission of data, that can result in a client suffering financial loss.

Bookkeeping business insurance policies generally contain the following coverages;

The errors & omissions/professional liability portion of Bookkeeper Insurance Coverage policies are usually issued on a “claims-made” basis. This means coverage is triggered when a claim is filed and you report it to the insurance company. An insurance policy typically has a one-year term, with an annual premium and deductibles on a per-claim basis. In contrast, commercial general liability coverage is almost always written on a per-occurrence basis (click here for the differences).

Bookkeeper Insurance Coverage Claims Examples

The following are a few claim examples that could happen to bookkeepers while working with businesses.

  • Tax Discrepancy: A bookkeeper was retained by 123 Company to prepare GST and PST statements for its client. The CRA issued a notice to 123 Company for certain tax discrepancies over the last 5 years. These discrepancies, totalling over $175,000, were the result of a certain misinterpretation of the Income Tax Act in regard to foreign sales. 123 Company brought action against the bookkeeper, claiming that it sustained damages in the form of interest owed to the CRA due to the tax discrepancies, which were a result of the bookkeeper’s negligence.
  • Unhappy Client: Allegations are brought on by an unhappy client who feels that they have been harmed by the bookkeepers’ actions or lack thereof. Even when such claims are frivolous in nature, defence costs can add up very quickly.

What kind of insurance does a bookkeeper need?

General liability insurance and professional liability insurance are important for bookkeeping professionals. A client could sue for negligence, errors, omissions, or misconduct resulting from your services. They could also sue for a bodily injury or property damage sustained while on your property. With general liability insurance and professional liability insurance, you’re covered for medical, legal defence, and settlement expenses up to your coverage limit.

For example, if you made an error in your client’s financial transaction records, the client could sue for the damages of your error. Professional liability insurance helps with legal defence fees and settlement awards so you don’t have to pay everything out-of-pocket.

Bookkeepers should also carry commercial property insurance and cyber liability insurance. Commercial property insurance protects the business’ equipment, building, and other assets against insured perils like fires, floods, windstorms, and theft. It also covers accounts receivable records, furniture, and other detached structures that are a part of the bookkeeper’s office. It’ll help pay for property repairs, replacements, and removals to prevent further damage.

Cyber liability insurance protects you against damages from data breaches, hacks, and loss of information. This is important because you likely store financial reports, receipts, and transactional records in an online database.

Do you need insurance for bookkeeping?

You should always purchase a comprehensive insurance package if you’re a bookkeeper. Not only do you provide a professional service for a fee and have access to sensitive financial information, but you could also suffer damages to your office. Having insurance protects your business against the financial loss that could result from your business operations or unexpected events. Without the right insurance coverage, you’ll have to find the money to pay for any legal costs, medical bills, or settlement awards yourself.

Do bookkeepers need errors and omissions insurance?

Errors and omissions insurance is also known as professional liability insurance. Bookkeepers should always carry errors and omissions insurance. As a professional, you provide services to your clients for a fee, and when their financial records are in your hands, they expect your services to be accurate. Professional liability insurance protects your business against legal fees and settlement costs when you have a claim stating errors, omissions, negligence, or misconduct.

Can a bookkeeper be held liable?

Bookkeepers can be held liable for damages to victims of fraudulent bookkeeping activities, such as false transaction records or receipts. In these cases, a client could sue you. Bookkeepers are required to follow legal and ethical rules governing accountants and accounting activities.

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