$1M Professional Liability (E&O) Insurance for Bookkeepers, Tax Preparers and Financial Service Firms

If a bank, lender or larger client asks your financial service firm for $1M, your Professional Liability (E&O) policy usually needs $1M per claim, the contract's yearly cap and your services listed.

What does a $1M requirement mean for financial service firms?

Professional Liability (E&O, short for Errors and Omissions) covers claims that a mistake in your bookkeeping, tax or financial work cost a client money, such as a missed filing or a payroll error. An illustrative clause looks like this:

• Per claim: the most the policy pays for any one claim. Here, $1M.
• Aggregate: here, $2M for the policy year. A $1M/$1M policy would not meet this clause.
• Claims-made: the policy covers claims made and reported while it is active, for work on or after the retroactive date. Clauses often ask you to keep coverage after the work ends.
• "Covering the services": the policy's description of your services must include your work for that client. A bookkeeping policy may not cover payroll or tax work unless those services are included.

Who asks financial service firms for $1M?

$1M often comes from:

• Banks and lenders hiring appraisers, business valuation firms or outside bookkeepers.
• Healthcare providers outsourcing billing and coding.
• Larger businesses handing off payroll, accounts payable or month-end close.
• Creditors and debt buyers placing accounts with a collection agency.

A $2M requirement appears on some larger contracts. It usually means closer review by the insurer (see $2M Professional Liability for financial service firms). If you mainly do books, see $1M Professional Liability for bookkeepers.

How is $1M built?

At $1M, the limit is usually one primary policy (the policy that pays first), with no excess layers (extra policies stacked above it). Bookkeepers and tax preparers are often written on accountants Professional Liability forms.

Appraisers, collection agencies, CPAs, investment advisers, insurance agents and mortgage brokers usually buy programs built for their fields. Other service firms often buy Miscellaneous Professional Liability, a form made for businesses without their own policy type.

• Data breaches: medical billing companies and payroll firms that handle sensitive data may also look at Cyber coverage (insurance for data breaches), since Professional Liability may not cover a breach.
• Umbrella: a commercial umbrella almost never covers Professional Liability (see Does a commercial umbrella cover Professional Liability?).
• Additional insured: this status (another party the policy also protects) is not automatic on Professional Liability. Many carriers may add a limited version when a contract requires it, usually covering only the client's liability from your services. A certificate of insurance (a one-page proof of coverage) shows coverage but adds no one as an insured, so ask the client if it is enough.

What will underwriters ask for?

An underwriter is the person at the insurer who decides whether to offer coverage and on what terms. At $1M, they usually ask for:

• Each service you offer, its share of your revenue, and your number of clients.
• Whether you handle client money, sign checks or access client bank accounts.
• Licenses, credentials and years of experience.
• Written engagement letters, review steps and how you protect client data.
• Prior claims, possible claims, and your current policy and retroactive date.

What affects the cost?

• Type of work. Tax, payroll, collections and valuation work may be rated differently than basic bookkeeping, since losses can be larger.
• Handling of funds. Control over client money usually raises the risk an underwriter sees.
• Claims history. Prior claims can raise the price or narrow your options.
• Aggregate and retention. $1M/$2M usually costs more than $1M/$1M. A higher retention (the amount you pay on each claim before the policy pays, similar to a deductible) usually lowers the premium.

Frequently asked questions

Do I need $1M Professional Liability as a bookkeeper or tax preparer?

Usually only if a client, lender or contract requires it, though some firms buy it anyway. The clause gives the per claim limit, the aggregate and the services to match.

Is $1M/$1M enough if my contract says $1M/$2M?

Usually not. A $1M/$1M policy generally falls short of a $1M/$2M clause because the yearly cap is lower, so confirm the exact wording in your contract. Morrow can request new quotes for a $1M/$2M policy and ask carriers to keep your retroactive date and prior acts coverage (coverage for past work) where the market allows. Starting the new policy before the current one ends may help avoid a gap. Report anything that could become a claim to your current carrier before you switch.

Does Professional Liability cover tax penalties or stolen client funds?

Sometimes, but not always. Some policies pay penalties and interest a client is charged because of your error, often under a sublimit (a lower cap inside the limit), and others exclude them. Check the policy wording. Tax the client owed anyway and fines against your own firm are usually excluded. Stolen client funds are usually not covered either. Theft of client money is usually handled by a crime policy or bond (coverage for theft of money).

Is $1M normal for a notary or loan signing agent?

Usually not. Notaries typically buy notary E&O, a separate policy that often has much smaller limits than $1M. A $1M limit for signing work can be harder to find, and Morrow can help you find it. If a client asks for $1M, the policy must show it and cover your signing work.

This article is general information, not legal advice or a coverage determination. Coverage depends on the actual policy wording, carrier underwriting and your contract terms.