Professional indemnity insurance for accountants is not optional for most practising members. The professional bodies set minimum terms as a condition of holding a practising certificate, and those minimum terms are more specific than what an open market policy might otherwise offer. Buying to the institute's specification rather than to a price is the whole of getting this right.
What the institutes require
Practising members are generally required to hold professional indemnity insurance meeting minimum terms set by their body, with a limit linked to the practice's income and a floor beneath it. The requirements also cover the insurer's standing, the excess, and continuing cover after the practice closes. Check your own body's current regulations rather than assuming, because the figures are reviewed.
What the cover answers for
A negligent act, error or omission in professional work: an error in a return that produced a penalty, advice that led to a loss, a missed deadline, a failure to spot something the engagement required. It pays the client's loss and the cost of defending the allegation, which on a technical accounting dispute is frequently substantial.
Run off when the practice ends
Because cover is claims made, a practice that closes and cancels its policy leaves years of completed work uninsured. Professional bodies generally require run off cover for a stated period after closure, and the premium for it is a real cost of retirement that should be planned for rather than met by surprise.
Where the exposure has grown
Advisory work rather than compliance is where the larger claims now come from. Tax planning, transaction advice and valuations each produce losses far larger than the fee. Practices whose mix has shifted towards advisory should revisit the limit rather than carrying forward a figure set when the work was mostly returns.
Questions people ask about professional indemnity insurance for accountants
Is professional indemnity compulsory for accountants?
For practising members of the main professional bodies, yes, as a condition of the practising certificate, on minimum terms the body sets.
What limit do I need?
Usually linked to the practice's income with a floor beneath it, set by your professional body. Check the current regulations rather than assuming last year's figure.
What happens when I retire?
Run off cover is generally required for a stated period after the practice closes, because claims about past work can arrive years later.
Does it cover a penalty my client incurred?
Where the penalty flowed from a negligent error in your work, generally yes as the client's loss. Your own regulatory fines are a different matter.