Understanding the Terms of the 360 Coverage Pros Tax Preparer Professional Liability Insurance
Understanding how your professional liability insurance policy works will keep your business safe and save you money. Begin your professional liability insurance education here.
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. Still, your policy includes several terms you should understand to take full advantage of it.
What Is Tax Preparer Professional Liability Insurance?
Professional liability insurance is a type of insurance that shields you against the financial impact of getting sued. It generates funds to mount a legal defense and pay for plaintiff damages and settlements if you're found liable. Tax preparers can do business with less worry and stress thanks to robust liability protection.
Think of professional liability insurance as a form of risk transfer. When you buy a policy from an insurance company, you enter into a contract to shift your risks onto them. That means they will cover the financial losses that can follow a professional error or omission. In the event of a claim, here's what you receive as a 360 Coverage Pros policyholder:
- 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 additional cost
- Litigation alternatives such as arbitration and mediation
- Court administrative expense coverage
- 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, professional liability insurance 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 professional liability insurance 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 professional liability insurance 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 have your back. 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 professional liability insurance 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: Your professional liability insurance insurer will provide you with an attorney to help you respond wisely if you receive a subpoena. This person will assist with submitting 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.
Other Key Terms in Your Tax Preparer Professional Liability Insurance
Your professional liability insurance policy is a legal contract. It precisely defines the benefits it will provide you and the conditions under which it delivers them. It also defines circumstances when it won't deliver benefits and each party's obligations in upholding the contract. Whenever you have a question about how your policy works, check your policy first. If you can't find the answer, consult the frequently asked questions on your insurance provider's website or call your customer service team.
For now, here are some key terms you should know as a shopper and owner of tax preparer professional liability insurance.
Coverage limits: You buy liability insurance to shield you from the financial consequences of making a professional mistake. One of your first shopping decisions will be how much insurance to buy. The technical term for this feature is "coverage limit" or "limit of liability." This refers to how much money your insurance company will pay to defend and settle liability claims against you. Obviously, the more protection you need, the more your policy will cost. Tax Preparer Professional Liability Insurance from 360 Coverage Pros has a $250,000 aggregate limit. This refers to the maximum amount your policy will pay for claims filed during a given year.
Payment options: Once you decide which policy to buy, you'll select your payment options. This involves determining your premium mode—annual or monthly at 360 Coverage Pros—as well as how to pay for your policy (credit card or electronic funds transfer). If you choose to pay more often than once a year, your insurance company may add a fee to each payment. This means the most expensive way to pay for your insurance is with monthly payments.
Effective date: After you decide on your coverage and make your first premium payment, your insurer will establish your policy's effective date. This is when your policy takes effect. Your safety net will last one year (the policy period) with professional liability insurance. Paying another premium will create a new effective date one year later. Knowing your effective date is crucial. It tells you when your protection begins and ends. If you don't make another premium payment at the end of the period, your coverage will expire. This means you will be financially unprotected against client lawsuits. This can have a devastating impact on your business and personal finances.
If you're switching carriers or updating your policy, it's imperative to never create a gap in coverage. This is due to the nature of most professional liability policies being claims made and reported, which we outline next. If you create a gap in coverage on this type of policy, as compared to an occurrence policy, you won't be able to file a claim for an incident that occurred previously, even if you held coverage at the time. Coverage must be continuous to file a claim, regardless of carrier. When purchasing new coverage, if you're unable to match the effective date of your previous policy, even if there's a little bit of overlap, it's better to choose the first available effective date that avoids a coverage gap.
Claims made and reported policy: Tax preparer professional liability insurance coverage is considered claims made and reported insurance. This means it protects you as long as the original incident occurs and you file a claim while the policy is active. If you cancel your insurance and then get sued for an incident that occurred while you were insured, the claim will be your financial responsibility. This is unlike so-called occurrence policies, which activate when the loss occurs, not when the claim gets filed. Car insurance policies are often examples of occurrence policies—even if your car insurance expired, you could still file a claim for an accident that occurred during the policy period. Claims made and reported policies are different in that coverage must be continuously held and needs to be in force when the incident occurred and at the time of being reported. Claims get reported and paid with your current carrier, even if you had a different one when the incident occurred.
Policy renewals: A year after you purchase your professional liability insurance, it will be up for renewal. At this point, you can decide to maintain the same protection, increase or decrease it or transfer your insurance to a different company. Most professional tax preparers opt to keep their policy going. They simply pay the next premium when it comes due, and the policy automatically renews. However, if you want to revise your policy, contact your insurer to make any needed changes.
Extended reporting period: A claims-made policy can leave you unprotected if you cancel it, and then a client files a claim for an incident that occurred when you were insured. Remember, a claims-made policy only pays out when the loss and claim both happen while your policy is in force. If you cancel it, litigation costs relating to your prior work will be uninsured. An extended reporting period closes this gap. It lets you file a claim under your prior coverage even though you already canceled it. Most professional liability policies have a limited built-in ERP (often for 30 or 60 days after cancellation). If you need a longer period, you may be able to buy it from your former insurer.
Deductibles: A deductible is how much of your liability claim expenses you must pay before your policy benefits kick in. This is a form of risk-sharing between you and your insurance company. Normally insurers offer a range of deductible options. At 360 Coverage Pros, it starts at $500 per incident, increasing to $1,000 or $2,000. The higher deductible you select, the less you'll pay for your insurance.
Selecting a Your Professional Liability Insurance Insurer
In shopping for professional liability insurance, your coverage is only as good as your insurer's experience and financial strength. To this end, make sure to buy only from an insurance company with a successful track record serving tax preparers. It should also have an excellent claims-payment rating from A.M. Best Company. This means it will likely be financially strong enough to pay for your claim. Lloyds of London secures the Tax Preparer Professional Liability Insurance program at 360 Coverage Pros. The Lloyds underwriter has extensive experience insuring accounting and related professionals and has an A.M. Best rating of "A" XV (Excellent).
In short, with the tax code becoming more complex every year, the risk of making a mistake in preparing taxes also grows. Without robust professional liability coverage, doing tax-preparation work can quickly 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.
