What is Employee Dishonesty Coverage?
Employee Dishonesty Coverage is an insurance policy meant to protect small businesses from financial losses due to the dishonest or criminal acts of one or more employees. It is also referred to as:
- Commercial Crime Insurance
- Crime Coverage
- Crime Fidelity Insurance
- Fidelity Bond
- ERISA Fidelity
Why Do You Need Employee Theft Coverage?
Did you know that75% of employees have admitted stealing from their employer and that it is responsible for 42.7% of inventory loss? Employee theft costs businesses $50 billion yearly. Those statistics alone point to the fact that you NEED employee theft insurance to protect your assets. Even If you employ the most trustworthy of employees there is always always the change of a bad apple in the mix.
How Employee Dishonesty Insurance Policies are Written
An employee theft policy can be written one of two ways:
- Loss Sustained: This covers a loss sustained during the time the policy is active up to the policy limits.
- Discovery Base: This is similar to a claims-made policy. This covers losses sustained at any time—but only if the loss was discovered during the time the policy was active.
These policies can have limits anywhere from $100,000 to $1 million in coverage.
What Does Employee Dishonesty Insurance Cover?
Employee dishonesty insurance provides coverage for your small business from
- Theft of money or money securities
- Loss of business property
- Forgery and alterations
- Fraud and embezzlement
- Unauthorized electronic fund transfers
- Computer fraud
This policy typically only covers the business owner(s) and other employees, managers, partners, directors, etc. that are named in the policy. It is usually designated per loss, per employee or per position.
For example, business owners are protected from theft by:
- Temporary Employees
- Seasonal Employees
- Independent Contractors
- Board Members
Losses by Directors and Officers are covered under a separate policy calledDirectors and Officers Insurance.
Examples of Coverage
What are some examples of the usefulness of employee dishonesty Insurance coverage?
Example #1: You recently found out one of your employees has been charging personal expenses on their business credit card for years and you let them go. Because you have employee dishonesty coverage, your policy will cover your financial losses up to your policy limit.
Example #2: A cashier in your deli has been skimming money from your cash register. They started stealing around $5 at a time—a discrepancy that can be explained. Eventually, the losses sustained became more brazen, so you install a security camera. You catch the employee in the act and they admit they’ve stolen thousands of dollars over the last few months. Your employee dishonesty policy will cover the loss!
Example #3: You own a hardware store and your inventory lists don’t match what’s stocked on your shelves. You review your security footage and find out that an employee that quit a month ago had been stealing tools. Because the incident happened while your coverage was active, you can recoup the financial losses.
Example #4: You find out that one of your accountants has been skimming money from your company’s employee retirement/pension funds for years. Because you invested in an ERISA Fidelity Bond, this loss is covered after it is discovered.
If your business is working on a client project, an endorsement can be added to your employee dishonesty policy to provide compensation for the loss of property or money by one of your employees.
What is Excluded from this Employee Dishonesty Insurance Coverage?
Employee dishonesty coverage usually excluded things that are covered underErrors and Omissions Insurance orCommercial Property Insurance, such as:
- Accounting errors and omissions
- Theft by the property/business owner
- Theft by an outside party
- Government seizure
- Data Breaches
- Legal costs
If it is found that an employee has committed theft of your property and you decide to keep them on your payroll, a subsequent loss claimed that is by that employee will NOT be covered by your employee dishonesty coverage.
How to Prevent Workplace Crime
There are numerous ways you can monitor your business and prevent theft of money, securities, or property. Some ideas include:
- Monitor your receipts by comparing them against sales made and the money prepared to deposit and make daily deposits to your bank when possible. If you find discrepancies it is far easier to determine who stole money and/or property when you’re checking daily.
- Make sure your business has ample security measures in place including locked doors, an on-site safe, and security cameras or security guards if possible.
- Conduct background checks on your employees and make sure they’re properly trained on procedures. Improperly trained staff can make mistakes that appear as if it was theft but were simply miscalculations in reporting.
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