About General Liability Insurance
All businesses, regardless of industry, face risks that should be covered by insurance. The most common and comprehensive type of policy business owners invest in is general liability insurance (or CGL).
Some of the risks CGL insurance covers are:
- Bodily injury
- Property damage
- Medical payments
- Legal defense and judgment
- Personal and advertising injury
While businesses aren't legally required to carry general liability insurance, operating without it is extremely risky. If your business is sued, you could end up facing fees totaling hundreds of thousands of dollars (or more). Having a sufficient CGL policy in place to help compensate for these damages is the only way to prevent this type of event from devastating your business.
Learn more about the risks covered by general liability insurance.
COMMON SITUATIONS THAT GENERAL LIABILITY INSURANCE WOULD COVER FOR A TAX PREPARATION BUSINESS
Example 1: During an appointment, your client falls in the bathroom, breaking several bones. General liability insurance would cover the cost of their medical bills.
Example 2: An employee leaves the coffee maker on at the end of the night. A fire breaks out, causing massive damage to your unit and a neighboring business. General liability insurance would cover the cost to repair or replace the damaged property, should your landlord name you in a lawsuit.
Example 3: Tax season is coming up and you’re looking to hire more employees. To take part in an upcoming job fair, you are required to show evidence of liability insurance. General liability insurance would help fulfill this requirement.
Example 4: A competitor has named your tax preparation business in a lawsuit, claiming your new ad campaign negatively targets their services. They are suing for damages, claiming they have lost business as a result. General liability insurance would cover your legal representation and any court-awarded damages.
Of course, this is not an exhaustive list of perils a general liability insurance policy will cover, and some conditions may result in a particular peril not being covered. It's always best to talk to your agent in-depth about the specifics of your policy to avoid blind spots in coverage.
Cost of General Liability Insurance
On average, tax preparation businesses in America spend between $400 - $700 per year for $1 million in general liability coverage.
Check out the chart below for a snapshot of average CGL expenditure across a variety of industries:
Several factors will determine the price of your policy. These include your:
- Number of employees
- Per-occurrence limit
- General aggregate limit
You may be able to acquire general liability insurance at a discounted rate by purchasing it as part of a business owner's policy (BOP) rather than as a standalone policy. A BOP is a more comprehensive solution that includes multiple forms of coverage, such as business interruption and property insurance.
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Other Types of Coverage tax preparation businesses Need
While general liability is the most important type of insurance to have, there are several other forms of coverage you should be aware of. Below are some other types of insurance all tax preparation businesses should obtain:
Professional Liability Insurance
In this industry, your clients rely on your professional expertise to ensure their taxes are properly prepared. If they feel they have been harmed due to your professional negligence, even if the claim is meritless, they may take you to court for damages. Professional liability insurance, also known as Errors and Omissions (E & O) insurance, will pay for your legal representation and costs associated with the suit, including damages awarded by the court.
Data Breach Insurance (aka Cyber Attack insurance)
As a tax preparer, you and your staff rely heavily on technology for the day-to-day operations of the business and maintain a great deal of personal client data. Unfortunately, this also makes you vulnerable to online hackers, an attack that is specifically excluded on a general liability policy. Data breach insurance, also known as cyber attack insurance, fills that insurance gap, covering damages from a data breach that results in stolen user data.
Commercial Property Insurance
Commercial property insurance pays to repair and/or replace business assets after an unexpected covered loss such as fire, natural disaster, or theft. The policy can be tailored to meet the organization’s specific needs, including coverage for any business-owned property kept onsite and real estate owned by your business.
Types of Coverage Some tax preparation businesses May Need
In addition to the policies outlined above, there are a few other types of coverage your tax preparation business may require depending on certain aspects of your operations. Some of these might not apply to you, so be sure to ask your agent which policies are right for your business.
Commercial Auto Insurance
Vehicles used for business purposes are specifically excluded on personal auto policies. If you use your vehicle for business purposes, you must obtain commercial auto insurance to fill any gaps in coverage. This policy covers the cost to repair or replace third-party property, the company’s damaged vehicle, and any equipment damaged in an accident. Purchasing the state-mandated minimum coverage leaves many entrepreneurs underinsured. Therefore, we encourage you to discuss policy coverages at length with your insurance professional.
Workers Compensation Insurance
State law mandates that all full-time and part-time employees be covered under a workers’ compensation policy. This policy pays medical bills stemming from an on-the-job injury or illness and a percentage of the employee’s lost wages while the injured party is unable to work. For accidents that result in lawsuits, it also ensures the business owner is properly defended in court and pays awarded damages.
Employee dishonesty, forgery, and fraud are specifically excluded on a standard business owner’s policy. Crime insurance provides coverage for such a loss, reducing the chances of a gap in coverage.
Additional Steps to Protect Your Business
Although it's easy (and essential) to invest in business insurance, it should not be your frontline defense. Yes, insurance will compensate for your business' financial losses after an incident occurs, but it's much better to avoid losses altogether.
With this in mind, here are three things you can do to better protect your business:
- Use legally robust contracts and other business documents. (We offer free templates for some of the most common legal forms.)
- Set up a limited liability company (LLC) to protect your personal assets. (Refer to our guide for step-by-step instructions on how to form an LLC in your state.)
- Streamline your business' internal processes. This will remove unnecessary variables from common tasks and create a safe, consistent environment for conducting business.
Frequently Asked Questions
What is included in a business owner’s policy?
A typical business owner's policy includes general liability, business interruption, and property insurance. However, BOPs are often customizable, so your agent may recommend adding professional liability, commercial auto, or other types of coverage to your package depending on your company's needs.
What is the difference between business insurance and general liability insurance?
"Business insurance" is a generic term used to describe many different types of coverage a business may need. General liability insurance, on the other hand, is a specific type of coverage that business owners need to protect their assets.
Do I need insurance before I start a business?
You should invest in coverage for your business before your first interaction with a customer. Although the cost of insurance may seem high for a brand new business, it's best to be proactive when it comes to protecting your assets. After all, you can't buy insurance to cover a loss that has already occurred.
Will insurance protect my business from everything?
Not necessarily. Certain exceptions may be written directly into your policy, and some perils may be entirely uninsurable. Be sure to discuss the scope of your policy in-depth with your agent to avoid being blindsided by holes in your coverage.