Tax Preparers’ Liability Insurance Coverage. How Does It Keep Your Business Safe?
Understanding how your professional liability insurance (PLI) policy works will keep your business safe.
As a professional tax preparer, you often run up against the blinding complexity of the U.S. Tax Code. Fortunately, buying and keeping professional liability insurance is much less complicated. How does it work? Read on to learn more.
What Is Tax Preparer Professional Liability Insurance?
First, let’s define tax preparer professional liability insurance (PLI). It’s a type of liability coverage that shields you against the financial impact of getting sued. It generates funds to mount a legal defense and also to pay plaintiff damages and settlements. With robust liability protection, tax preparers can do business with less worry and stress. This lets them focus on what they do best…prepare tax returns.
Think of professional liability insurance as a form of risk transfer. When you buy a policy from 360 Coverage Pros, you enter into a contract with our insurance underwriter to shift your risks onto them. That means it will cover the financial losses that can follow a professional error or omission. With a PLI policy from 360 Coverage Pros, you receive:
- The ability to call our 24/7 legal-advice hotline.
- Access to a claims adjuster to manage your case.
- Quick appointment of a skilled defense attorney at no cost to you.
- Litigation alternatives, such as arbitration and mediation.
- Coverage of court administrative expenses.
- Legal support with regulatory enforcement actions.
- Advice regarding subpoenas for documents or testimony.
- Financial support for attending trial or arbitration sessions.
- Employee theft coverage.
Importance of Covered Services
No insurance policy will cover you for every conceivable job activity. If it did, its cost would be prohibitive. Instead, insurers select the areas of your job they can reasonably and cost-effectively cover. For tax preparers, PLI typically applies to:
- Tax work
- Services as a notary public
- General business planning
- Reviews, compilations and audit work for private companies and individuals (up to 25% of total services)
- Personal financial planning or investment advisory services (up to 25% of total services)
Note: Some tax preparer PLI policies do not cover bookkeeping practices, such as reviews or compilations. However, the 360 Coverage Pros policy does, including bookkeeping, write-ups and payrolls.
The Core of Your Policy: the Insuring Agreement
Your professional liability insurance policy protects you in multiple ways. Your policy spells these out in the section entitled “Insuring Agreements.” When you buy a 360 Coverage Pros PLI policy, you will receive five types of protection:
Professional liability– Your insurer will pay for damages and claims expenses arising from consumer litigation. If you commit a wrongful act or cause an injury while performing professional services, your insurer will cover you. With a 360 Coverage Pros policy, you can access up to $250,000 in legal benefits each year. These funds will pay for your legal defense and for court judgments and settlements should you lose your case.
Disciplinary or regulatory proceedings– Most professional liability claims involve client disputes. However, a tax preparer might violate a state regulation, sparking disciplinary action. In such cases, a PLI policy can pay for attorney fees and other costs incurred in responding to regulator investigations. At 360 Coverage Pros, our disciplinary/regulatory protection provides $25,000 in aggregate annual coverage. This means it will cover multiple investigations, up to a maximum of $25,000 per year.
Subpoena Assistance– If you receive a subpoena, your PLI insurer will provide you with an attorney to help you respond wisely. This person will assist with submission of requested documents and with testimony preparation. Your lawyer will also accompany you to your deposition. The maximum benefit at 360 Coverage Pros is $10,000.
Defendants Expense– If a liability claim requires that you go to a court or arbitration session, your policy will pay for approved expenses, including loss of time. The benefit in your 360 Coverage Pros policy is $250 per day, up to a $10,000 aggregate for all days.
Employee Theft– Although not related to client litigation, a 360 Coverage Pros policy also reimburses for direct physical loss of money, securities or other property resulting from employee theft. The maximum annual coverage under our policy is $5,000.
Professional Liability Insurance Coverage Summary
Tax preparers’ liability insurance provides coverage for cost related to your errors; IRS penalties and interest due to your mistakes; as well as cost related to your defense in a lawsuit; court cost, attorney fees, settlements and judgments up to your policy limits. It protects against businesses against claims of mistakes, negligence, inadequate work, inaccuracies, misrepresentation or similar allegations. It covers the undelivered services that caused financial harm to a customer. It does not cover dishonest, criminal, fraudulent or malicious acts.
In short, with the tax code becoming more complex every year, the risks of making a mistake preparing taxes also grows. With robust professional liability coverage, preparing taxes hopefully will never become your own taxing nightmare.
In the market for tax preparer professional liability insurance? Check out the coverage available at 360 Coverage Pros, with premiums starting at $23.33 per month.
