Here's something most accounting professionals don't realize until it's too late: your CPA license doesn't automatically protect you from lawsuits. A single missed tax deadline, a transposed number in financial statements, or even a baseless accusation from an unhappy client can cost you hundreds of thousands in legal fees—even if you did nothing wrong.
That's where insurance comes in. But with professional liability, cyber coverage, business owners policies, and a dozen other options, figuring out what you actually need feels overwhelming. This checklist breaks down exactly which coverages are essential, which are optional, and when to add more protection as your practice grows.
Essential Coverages: The Non-Negotiables
Some insurance coverages aren't just smart business decisions—they're legally required or contractually mandated. Let's start with what you absolutely must have.
Professional Liability Insurance (Errors & Omissions)
This is your first line of defense. Professional liability insurance—also called E&O—covers you when clients claim you made a mistake, missed something important, or gave bad advice. The most common claims? Tax preparation errors like missed deductions or late filings, bookkeeping mistakes such as misclassified expenses, and audit oversights where you didn't catch material issues.
Most accounting firms need $1 million to $2 million in coverage. But here's the catch: if you work with corporate clients, especially publicly traded companies or Fortune 500 firms, they'll often require $3 million to $5 million in limits. Check your engagement letters—that coverage requirement is usually buried in the contract terms.
Some states legally require E&O coverage. California mandates at least $100,000 per CPA per claim (capped at $1 million) when you incorporate. Massachusetts requires $250,000 to $1 million depending on firm size if you're an LLP. Ohio requires proof of insurance when licensing your CPA firm. The good news? Coverage is affordable—most accounting firms pay around $73 per month according to 2025 industry data.
Cyber Liability Insurance
In 2025, this isn't optional anymore. Accounting firms store tax returns, Social Security numbers, bank account information, and audit workpapers—exactly what cybercriminals want. The average data breach now costs $4.9 million globally, and small firms are just as likely to be targeted as large ones.
Cyber liability insurance covers breach response costs like forensic investigations, client notification, and credit monitoring. It also covers legal defense if clients sue you for the breach, regulatory fines from agencies like the FTC, and ransomware extortion payments. Many policies now include proactive cybersecurity resources to help prevent attacks in the first place.
Finance and accounting businesses pay an average of $58 per month for cyber coverage. That's a bargain compared to the six-figure cost of responding to a breach without insurance.
Business Owner's Policy (BOP)
A BOP bundles three essential coverages into one convenient package: general liability (if a client slips and falls in your office), commercial property insurance (covering your building, equipment, computers, and furniture), and business income coverage (paying your bills and employees if you have to temporarily close after a covered event like a fire).
Accounting firms typically qualify for lower BOP premiums because you're classified as low-risk. You're not operating heavy machinery or dealing with hazardous materials—you're sitting at desks working on spreadsheets. If you lease office space, your landlord probably requires general liability coverage anyway, making a BOP an obvious choice.
Optional Coverages: When to Add More Protection
Once you have the essentials covered, these additional policies fill in the gaps. You might not need all of them—but depending on your practice, some could be critical.
Employment Practices Liability Insurance (EPLI)
If you have employees, EPLI protects you against claims of wrongful termination, discrimination, harassment, or retaliation. These lawsuits are expensive to defend even when you win. Solo practitioners can skip this, but once you hire your first employee, add EPLI to your checklist. Firms with multiple employees should consider this essential rather than optional.
Commercial Umbrella Insurance
Umbrella coverage extends your liability limits beyond what your BOP or professional liability policies provide. If a major lawsuit exceeds your primary policy limits, umbrella insurance kicks in. This is especially important if you have high net worth or work with high-value clients where potential claims could be massive.
Crime Insurance
Crime coverage protects against employee theft, fraud, and forgery. If your bookkeeper embezzles funds or someone forges checks from your business account, crime insurance covers your losses. Not every firm needs this, but if you handle client funds or have employees with access to accounts, it's worth considering.
Accounts Receivable Coverage
This covers losses from unpaid invoices if your billing records are destroyed in a fire, flood, or cyberattack. If you maintain detailed accounts receivable records that would be difficult to reconstruct, this coverage ensures you don't lose money because you can't prove what clients owe you.
When to Add or Increase Coverage
Your insurance needs change as your practice grows. Here are the key triggers that mean it's time to review your coverage:
When you land a major corporate client: Check their insurance requirements in the engagement letter. You'll likely need to increase your professional liability limits to $3 million or more.
When you hire your first employee: Add EPLI immediately. Employment-related lawsuits are common and expensive, even for small firms.
When you change business structure: If you incorporate or form an LLP, check your state requirements. You may be legally required to carry higher coverage limits.
When you expand services: Adding audit services, forensic accounting, or valuation work increases your professional liability exposure. Notify your insurer and adjust coverage accordingly.
When you move to a new office: Update your property coverage to reflect your new location and any changes in equipment value.
Annual Review Checklist
Set a recurring reminder to review your insurance every year—ideally 60 days before your policies renew. This gives you time to shop around if needed. Here's what to check:
Review your professional liability limits against your current client contracts. Corporate clients often increase their insurance requirements, and you need to stay compliant.
Verify your property coverage reflects current equipment values. That computer equipment you bought five years ago has been replaced—make sure your policy knows that.
Confirm your cyber coverage includes current threats like ransomware and social engineering. Cyber threats evolve quickly, and older policies might have gaps.
Check that your policies are still "claims-made" and understand your tail coverage options. If you switch insurers or retire, you need extended reporting period coverage (tail coverage) to protect against claims filed after your policy ends for work you did while covered.
Evaluate whether your deductibles still make sense. As your practice grows and becomes more profitable, you might increase deductibles to lower premiums.
Getting Started with Your Coverage
Don't wait until you need insurance to get it. Most E&O policies are claims-made, which means you need coverage in place both when the error happened and when the claim is filed. Gaps in coverage can leave you exposed for years.
Start by gathering your engagement letters and lease agreements to identify any insurance requirements you're already contractually obligated to meet. Then check your state's CPA licensing requirements. That gives you your baseline coverage needs.
From there, work with an insurance broker who specializes in accounting firms. They'll understand your specific risks and can often bundle coverages to save you money. The key is getting comprehensive protection that grows with your practice—because the best time to have insurance is before you need it.
