What is employee dishonesty coverage?

Employee dishonesty coverage is a crucial component included in a commercial crime insurance policy. It compensates business owners for employee actions that may cause physical or financial harm to the business. Some activities it may protect against include financial forgeries, cybercrimes, loss of business property, embezzlement and unauthorized money transfers. The plan is generally offered to small businesses and may feature per-position, per-person, and per-incident limits. Workers covered include temporary employees, seasonal laborers, contractors, volunteers, board members and trustees.

While employee dishonesty coverage is essential, businesses with greater risk exposure might consider broader coverage options available under commercial crime insurance policies, which typically offer higher limits and more extensive protection. You may come across employee dishonesty coverage under the following names:

Employee theft insurance
Crime fidelity insurance
Fidelity bond
ERISA fidelity

Learn more about employee dishonesty coverage

When do I need to be aware of employee dishonesty coverage?

All business owners need to learn about employee dishonesty coverage. No matter how honest your employees are, it only takes one bad apple to bury your company and its reputation. While an insurance policy may not safeguard your brand, it may provide the financial means to recover. Companies in retail, health care, and finance may need this coverage more than others.

What is important to know about employee dishonesty coverage?

Employee dishonesty coverage is not as straightforward as other insurance policy components. There are some clauses you should be mindful of:

If you make a claim against the actions of an employee and keep that person in the company, another claim to the insurance company for the actions of that person may be denied.
Employee dishonesty coverage may not offer compensation for several types of harmful incidents, such as data breaches, accounting errors, government seizures, legal fees, and vandalism.
You may add errors and omissions coverage to your insurance policy to cover honest mistakes, bad advice, or negligence.
Insurance companies write policies based on either when the loss was discovered or when the loss was sustained.
Policy coverage limits can be as high as $1 million or as low as $100,000.

Employee dishonesty coverage exclusions

Employee dishonesty coverage exclusions vary depending on the policy and the business’s specific needs. However, examples of some common exclusions include:

Business interruption is not covered under employee dishonesty coverage.
Unreported crimes are not covered under most employee dishonesty policies.
Employees with a history of theft are not covered under employee dishonesty policies.
Inventory losses are not covered if they cannot be proven to be crime-related.

Types of employee dishonesty claims

Employee dishonesty claims can take many forms, including:

Asset misappropriation: This is the most common and least costly type of employee fraud. Examples include using company credit cards for personal expenses or using fictitious contractors to make repairs and invoice the company.
Financial statement fraud: This is the least common and most costly type of employee fraud. Examples include manipulating financial statements to conceal theft or embezzlement.
Theft of money or securities: This includes theft of cash, checks, or other financial instruments.
Forgery and alteration: This includes altering or forging documents, such as checks or invoices, to conceal theft or embezzlement.
Credit card fraud: This includes using company credit cards for personal expenses or making unauthorized purchases.
Embezzlement: This includes stealing company funds or assets for personal gain.

It’s essential for businesses to understand the types of employee dishonesty claims that can occur and to have adequate coverage in place to protect against these risks.