A self-employed bookkeeper is not required by law to hold any type of insurance, but bookkeeping organisations you’re a member of, and clients might require accountancy insurance. Even if that’s not the case, there are at least three types of insurance to strongly consider: professional indemnity insurance (PII), public liability insurance and cyber insurance. Here’s an explanation of what these types of insurance coverage and why you might need them.
Should a bookkeeper have insurance?
Generally speaking, a bookkeeper should have at least three insurance types to protect against the most common perils that put a bookkeeper’s business at risk.
Professional indemnity insurance for bookkeepers
Professional indemnity insurance protects against claims that your professional advice or service was negligent. This could include making a mistake or giving poor advice to a client who suffers a financial loss as a result. If that happens, they could sue you.
PII covers two primary categories of costs associated with these types of claims. First, PII would provide you access to a qualified legal team to negotiate the claim, mount a defence, and cover related costs. Second, PII would cover any compensatory damages you’d be required to pay if it’s determined that you were negligent in your duties to your client.
Basic accountancy insurance starts from around £100 a year, so the price is not prohibitive. And having a policy in place can help save you or your business from financial ruin if the worst happens. Legal defence costs can easily run into the thousands of pounds, and compensation payments can be enormous, so insurance is critical for professions such as bookkeepers.
Public liability insurance for bookkeepers
Bookkeepers who meet with their clients in person should hold a public liability insurance policy. This holds true whether your appointments take place at your business offices, your home or if you meet a client at their premises.
If you only engage with clients at your home, check with your building insurance company as they may be able to provide public liability cover for this, in which case you might not need a separate, standalone public liability insurance policy.
Public liability insurance protects against situations where someone not a part of your business is injured or becomes ill, and they blame your business. For example, if a client visits your offices and slips on a wet floor, they could take legal action against you for failing to provide a safe environment.
As with PII, a public liability insurance policy covers both legal defence costs and any compensation you’re liable to pay.
Anyone working in a capacity where they have in-person dealings with public members should have public liability insurance, including bookkeepers. A bookkeeper who only works virtually probably would not need public liability insurance, but this would be somewhat unusual.
Cyber insurance for bookkeepers
Since bookkeepers handle and store sensitive financial information for their clients, it’s a good idea to buy a cyber insurance policy. Cyber insurance protects against cybercrimes and data breaches that can have an impact on you and your clients.
It provides expert assistance with managing incidents that affect your business, from reputation management to recovering lost data and even covering a ransom in some cases. If you wouldn’t know what to do if you are hacked or open an email containing a virus, then cyber insurance is for you.
Cybercrimes cost thousands of pounds to fix, so the premium can be well worth the cost, especially when considering that nearly half of UK businesses were affected by some sort of cybercrime in the past year. For reference, the most common type of cybercrime is fraudulent emails or being directed to fraudulent websites.
Does a bookkeeper need professional indemnity insurance?
Bookkeepers who are members of specific bookkeeping organisations might be required to hold professional indemnity insurance as a condition of their membership. If you hold a trade membership or are considering joining one, be sure to check their PII requirements.
If you don’t need PII to satisfy any membership requirements, you might opt not to hold PII. However, most bookkeepers would recommend having a policy. You might never need to claim, but even then, the peace of mind can be valuable.
Even if you are very experienced and careful, mistakes can happen. And clients can bring frivolous claims against you that have no merit, even if you have done nothing wrong. In that case, you’d still need to pay for legal assistance to help defend yourself. Without PII, you’d have to pay these costs yourself. PII can be useful in those situations, too, not only to provide legal assistance and funding to pay for it but also because having an insurance company at your back can help discourage clients from pursuing frivolous lawsuits in the first place.