Seminars for small businesses tell aspiring entrepreneurs there are 3 people they should hire when they start. Those 3 people are an accountant, an attorney, and an insurance agent. I understand that an accountant and attorney can be expensive and, that's why some people initially skip those things. But insurance is a non-negotiable, especially if you're starting an Enrolled Agent Firm.
Insurance not only protects you but it also protects your clients. You shouldn't begin working without having this protection for yourself and your business. Today we'll briefly examine what insurance is and the two types of insurance you should have if you're opening up a virtual Enrolled Agent Firm.
If you have a new Enrolled Agent firm or are considering opening one you should join my community - How to Start an Enrolled Agent Firm. You will get e-mails from me and join other Enrolled Agents starting their firms. We get to work through common problems and network together.
What is Insurance for Your Enrolled Agent Firm?
Insurance is a contract between you and the company who represents you, to cover you financially against losses. We call this contract a policy and your business is the policyholder. You pay toward this policy with payments called premiums. When you open your Enrolled Agent firm there are different losses that you will want to protect yourself against such as:
Accident
Cyber Liability
Disability
General Liability
Health
Injury
Life
Property
That list is not all-inclusive but covers some of the things you want to consider when starting your business. For example, if you are the sole provider for yourself or your family what will you do if you get injured and cannot work for 3 months? This is what disability insurance would cover.
How Does Insurance Work?
Your firm can get insurance policies for specific risks. You will pay your premiums for coverage. Then when you need coverage for a certain event you will call your insurance company to review your policy and make sure they cover that type of incident. Then they will have you pay your deductible, an amount that you must pay before they pay a claim. Once you have paid your deductible the insurance company will arrange to pay the injured party. The amount they pay depends on the amount and type of coverage you have.
Now let's look at the two types of insurance you need in your firm - professional liability and cyber liability insurance.
Why You Need Professional Liability Insurance in Your Enrolled Agent Firm
Mistakes happen, and you are not above making one. Professional liability insurance, also known as errors and omissions, covers you in the event you make a mistake. This could be a simple transposition of numbers on a return. But it also covers you if you misplace a client's tax documentation or send a tax return with the wrong socials. After almost a decade in business, I had to make my first professional liability claim in January of 2023. You can find out more about it in the video below.
If you don't have your firm yet but are working as a contractor, you still need your own E&O policy. A mistake you make that leads to a lawsuit or financial loss for the firm could cause them to come after you to recoup that money. This would be a time to make an E&O claim. This protects your client from having to pay penalties or interest as a result of your mistake. It also protects you and your business from losing everything due to the same mistake. The mistake I shared in the video above was a $15,000+ mistake. A nice ouch if I would have to pay it all out of pocket right before tax season started.
Why You Need Cyber Liability Insurance in Your Enrolled Agent Firm
If you are a virtual firm you are a hacker's dream come true if they can breach your software. Think about it, you have hundreds of people's personal identifying information (PII). This information includes names, addresses, phone numbers, and dates of birth, in addition to their social security number. These types of breaches can cost a firm $125 for each person's information exposed in a data breach. This isn't just the taxpayer who files a return. This is for every person listed on the return. But it doesn't stop there, it also includes each person in your contacts that you have some of this information for. Yes, that problem client that didn't even pay you in full. The prospect that threw up all the red flags after they sent you information in your e-mail after you gave them access to a portal. They're included in this. Cyber liability insurance covers these types of injuries. A simple breach lawsuit could easily put most firms out of business.
That is why it is so important to make sure you are making every effort to protect this data. It's also why the IRS requires all firm owners to have a Written Information Security Plan (WISP) for their office. This plan will detail the steps that your firm is taking to safeguard information and the steps you'll take in case a breach does happen. If you're nervous, don't worry. I was too! Especially after sitting in a continuing education course by Brad Messner. If you need guidance writing your WISP the IRS has a nice template. Brad's company, Financial Guardians, is also a good resource to make sure you stay up to date with protecting your firm.
Now It's Your Turn!
Do you have the necessary insurance in your firm to keep you and your business protected? Or have you been out here riding dirty?
I wasn't joking when I said Brad's class had me clutching my pearls. It made me do a serious review of my cyber liability policy. I still feel like something is missing from my WISP. You can never be too safe. Hopefully, you have these insurance policies but never have to use them. If your firm isn't virtual or you have clients coming to your home you also need to get general liability insurance. I'll cover that in another article.
1 - What type of insurance do you have for your firm now? After reading this article what type of insurance will you be shopping for this month?
2 - Do you have a WISP? Don't answer that! If you have an Enrolled Agent Firm or even a tax firm for that matter the IRS requires you to have a WISP. I'm here to keep you accountable - what date are you planning to write or review yours? This month!
3 - Sharing is caring. If you learned something new from this article let me know in the comments but also share this with your friends in the tax world.
Timalyn S. Bowens EA is America's Favorite EA and Tax Expert who will work hard to find a customized legal solution for you! As an Enrolled Agent licensed through the Internal Revenue Service Timalyn is able to fight the IRS for taxpayers in all 50 states. As the host of Tax Relief with Timalyn Bowens and a YouTube content creator she empowers taxpayers to make educated decisions about their tax situation.
When you are facing questions regarding your personal or business taxes, working with a professional makes all the difference. At Bowens Tax Solutions, we serve our Louisville-area neighbors by providing the tax services and knowledge needed to succeed. We are here to assist you with your tax issues and preventative care. Visit our website at www.bowenstaxsolutions.com for more information.
I have work to do. Thank you this was an eye opener.