If you're running an accounting practice or CPA firm in Texas, you've probably heard conflicting advice about insurance requirements. Here's what makes Texas unique: the state takes a hands-off approach that surprises most business owners. Unlike almost every other state, Texas doesn't require you to carry workers' compensation insurance. And there's no state mandate for professional liability coverage either. But before you celebrate those savings, you need to understand what this actually means for your practice.
The reality is that while Texas law gives you freedom, your clients and contracts won't. Most serious business relationships require proof of insurance, and going without coverage exposes you to devastating financial risks. Let's break down exactly what you need to know about insurance requirements for accounting and CPA businesses in Texas.
Workers' Compensation: Texas's Unusual Optional System
Texas stands alone as the only state in the country where workers' compensation insurance is optional for private employers. That means your accounting firm isn't legally required to buy a policy for your bookkeepers, tax preparers, or administrative staff. You can choose to "opt out" of the workers' comp system entirely.
But here's the catch that trips up many practice owners: if you don't carry workers' comp, you lose your legal shield against employee lawsuits. Normally, workers' comp is an exclusive remedy system—employees can't sue you for workplace injuries because the insurance handles their claims. Without coverage, an employee who trips over a power cord and breaks their wrist can sue you directly for medical bills, lost wages, pain and suffering, and more. That single lawsuit could cost you more than a decade of workers' comp premiums.
If you do decide to go without coverage, Texas requires you to follow specific procedures. You must file Form DWC 005 annually with the Texas Department of Insurance, post written notices at your workplace in English and Spanish (and any other relevant language), and provide written notice to all new hires that they're not covered. Accounting firms typically pay around $34 per month for workers' comp coverage—a small price for protecting yourself from potentially catastrophic liability.
There's one important exception: if your firm contracts with government entities, you must carry workers' compensation for employees working on those state-related projects. This isn't optional. The state wants assurance that workers on public projects are protected.
Professional Liability Insurance: What Clients Really Require
Professional liability insurance—also called errors and omissions (E&O) insurance—covers you when a client claims you made a mistake, missed something important, or gave bad advice that cost them money. Maybe you miscalculated depreciation on a tax return, missed a filing deadline, or failed to catch an employee embezzlement scheme during an audit. These are the nightmares that keep CPA firm owners up at night.
The Texas State Board of Public Accountancy doesn't require you to carry professional liability insurance to maintain your CPA license. However, this is one of those situations where legal requirements tell only part of the story. Most serious clients won't work with you without proof of E&O coverage. Large Texas corporations, energy companies, and government contractors routinely demand minimum coverage of $1 million to $2 million per claim. If you can't provide a certificate of insurance, you simply won't get the contract.
Even smaller clients are becoming insurance-conscious. When they're trusting you with their financial records, tax compliance, and regulatory filings, they want to know you're covered if something goes wrong. The good news is that professional liability insurance for accountants is relatively affordable—averaging around $45 per month or $537 annually for typical coverage. That's a fraction of what you'd pay in legal fees just to defend against a single malpractice claim, even if you ultimately win.
General Liability and Other Essential Coverage
General liability insurance handles the non-professional risks that come with running any business. If a client trips on your office carpet and breaks their ankle, that's general liability. If your employee accidentally spills coffee on a client's laptop during a meeting, that's general liability. If you're accused of copyright infringement in your marketing materials, that's general liability too.
Texas doesn't legally require general liability insurance for accounting firms, but it becomes practically essential if you have a physical office where clients visit. Many commercial lease agreements require proof of general liability coverage before you can sign the lease. And like professional liability, client contracts often specify minimum GL coverage amounts.
You should also consider cyber liability insurance, especially given the sensitive financial data you handle. Accounting firms are prime targets for cyberattacks and data breaches. If hackers access your clients' tax returns, bank account information, or Social Security numbers, you could face notification costs, credit monitoring expenses, regulatory fines, and lawsuits. Cyber insurance covers these scenarios, and it's becoming a standard requirement for firms that handle sensitive data.
Building Your Insurance Strategy
The smart approach for Texas accounting firms is to think beyond minimum legal requirements and focus on actual risk exposure. Start by reviewing your client contracts and lease agreements to identify specific insurance requirements. Make a list of the coverage types and limits each contract demands. This gives you a baseline for what you absolutely need.
Next, assess your risk profile honestly. Do you have employees? If so, strongly consider workers' comp even though Texas doesn't require it—the lawsuit protection alone justifies the cost. Do you provide audit services, tax planning, or business valuation work? These higher-risk services demand robust professional liability coverage with higher limits. Are you handling payroll data, tax returns, or financial records electronically? Cyber liability becomes essential, not optional.
Talk to an insurance broker who specializes in accounting firms. They can help you package coverage efficiently, often bundling professional liability, general liability, and cyber coverage in a business owner's policy (BOP) that costs less than buying each policy separately. They'll also understand the specific risks Texas accounting firms face and can recommend appropriate coverage limits based on your practice size and service mix.
Taking Action on Your Insurance Needs
Don't let Texas's relaxed legal requirements lull you into thinking insurance is optional. The lack of state mandates doesn't mean you can operate without coverage—it just means you need to make informed decisions about protecting your practice. Review your current coverage annually, especially as your practice grows or your service offerings change. What made sense when you were a solo practitioner might be inadequate when you're managing a team of five staff accountants.
Get quotes from multiple insurers, compare coverage carefully (not just premiums), and make sure you understand what's covered and what's excluded. The right insurance strategy protects your practice, satisfies your clients' requirements, and lets you focus on doing what you do best: helping clients navigate their financial challenges with confidence and expertise.
