Here's what surprises most CPAs starting their practice in California: the state doesn't actually require you to carry professional liability insurance to get licensed. But before you celebrate, here's the reality check—your clients absolutely will require it. Corporate clients, government agencies, and even many small businesses won't sign an engagement letter without proof of coverage. So while California's Board of Accountancy won't ask for your insurance certificate, the market demands it anyway.
If you're running an accounting practice or CPA firm in California, understanding your insurance requirements—both the legal mandates and the practical necessities—can save you from expensive gaps in coverage. This guide breaks down exactly what you need to know about workers' comp thresholds, professional liability minimums, and the coverage types that protect your practice from financial disaster.
What California Law Actually Requires
Let's start with the non-negotiables. California doesn't require individual CPAs to carry insurance to maintain their license through the Board of Accountancy. Your licensing requirements focus on education, passing the Uniform CPA Exam, and completing work experience—not insurance certificates. However, if you incorporate your practice or form an LLP, that's when state regulations kick in.
For accounting corporations and CPA firms operating as entities, California Code of Regulations Title 16, § 75.8 establishes minimum professional liability coverage: at least $100,000 per CPA for each claim (capped at $1 million total), and $250,000 per CPA annually (capped at $3 million aggregate). If you have five CPAs in your firm, you'd need $500,000 per claim coverage, but no more than the $1 million cap.
Workers' compensation is the other mandatory coverage. If you employ anyone—even a single part-time bookkeeper—California law requires workers' comp insurance. This covers medical expenses and lost wages if an employee gets injured or becomes ill due to work-related activities. Solo practitioners without employees can skip this coverage, but the moment you hire your first team member, you're legally required to secure a policy.
Professional Liability Insurance: The Client-Driven Mandate
Even though California doesn't mandate professional liability insurance for individual CPAs, you'll struggle to build a practice without it. Here's why: engagement letters from corporate clients almost universally include insurance requirements. Many contracts specify coverage limits between $1 million and $2 million. If you're working with Fortune 500 companies or publicly traded firms, expect requirements closer to $3 million to $5 million.
Professional liability insurance—also called Errors and Omissions (E&O) insurance—protects you when clients claim your services caused them financial harm. Maybe you missed a tax deduction that cost them thousands. Perhaps an error in financial statements led to poor business decisions. Nearly 60% of accounting firms have faced some form of malpractice claim or dispute within the past five years. Without coverage, you're paying defense costs and potential settlements out of pocket.
The coverage handles more than just settlements. Your policy pays for legal defense, which can easily run $50,000 to $100,000 even if the claim lacks merit. It covers allegations of negligence, mistakes in professional services, failure to deliver services, and missed deadlines. For most small to mid-sized CPA firms, a policy with $1 million per occurrence and $2 million aggregate limits represents the baseline.
General Liability and Cyber Coverage: The Modern Necessities
General liability insurance isn't state-mandated for accounting firms, but it protects against the physical world risks your practice faces. When a client trips over your office rug and breaks their wrist, general liability covers their medical bills and any lawsuit that follows. If you accidentally damage client property during a site visit, it's covered. Standard policies typically provide $1 million per occurrence with $2 million aggregate coverage.
Cyber liability insurance has shifted from optional to essential for California CPAs. You're handling Social Security numbers, tax returns, bank account information, and financial statements. A single ransomware attack or data breach can devastate your practice. Cyber policies cover breach response services, notification expenses for affected clients, credit monitoring services, legal fees, regulatory fines, and ransomware extortion payments. Annual premiums typically range from $1,000 to $7,500, depending on your firm size and security measures.
California's privacy landscape makes cyber coverage even more critical. The California Consumer Privacy Act (CCPA) imposes strict requirements on businesses handling personal information. New regulations approved in September 2025 require certain businesses to conduct annual cybersecurity audits starting in 2028, with requirements taking effect January 1, 2026. These audits must be performed by qualified professionals using standards like those from the American Institute of CPAs. If you're managing client data and experience a breach, the costs of compliance, notification, and potential penalties add up quickly.
Recent Legislative Changes Affecting CPAs
Governor Gavin Newsom signed Assembly Bill 1175 in October 2025, modernizing CPA licensure requirements in California. The bill takes effect January 1, 2026, with new licensing requirements becoming effective January 1, 2027. Under the updated framework, CPA candidates must earn a bachelor's degree with an accounting concentration, pass the Uniform CPA Exam, and complete two years of general accounting experience. The 150-credit-hour requirement has been restructured to create more flexible pathways into the profession.
While AB 1175 focuses on education and licensing rather than insurance requirements, it signals California's commitment to addressing the CPA workforce shortage while maintaining consumer protections. The Board of Accountancy also eliminated the Professional Ethics Exam requirement as of July 1, 2024, replacing it with a regulatory review course required for first license renewal. These changes don't directly impact your insurance needs, but they reflect the evolving regulatory landscape for California CPAs.
How to Get Started with the Right Coverage
Start by assessing your firm structure and client base. Solo practitioners without employees need professional liability and cyber insurance at minimum, with general liability coverage strongly recommended. If you have employees, add workers' compensation immediately—it's not optional. Incorporated firms or LLPs must meet the statutory minimum of $100,000 per CPA per claim and $250,000 per CPA annually.
Review your client contracts to identify specific insurance requirements. If you're pursuing Fortune 500 clients or government contracts, you'll likely need higher limits than the statutory minimums. Many CPAs find that $2 million to $3 million in professional liability coverage opens doors to larger, more lucrative engagements. Work with an insurance broker who specializes in professional services—they understand the unique exposures accounting firms face and can structure policies that address your specific risk profile.
Don't wait until a client demands proof of insurance to secure coverage. Claims-made policies—the standard for professional liability—only cover claims made during the policy period for services performed during the policy period. Starting coverage today doesn't protect you from claims arising from work you completed last year. That's why establishing insurance early in your practice protects your entire professional history going forward.
California's insurance requirements for CPAs blend legal mandates with market realities. While the state may not require every type of coverage for individual practitioners, the practical demands of running a successful accounting practice make comprehensive insurance protection essential. Protecting your practice means protecting your livelihood—and your clients' trust.
