Some insurance companies offer employee dishonesty coverage to protect businesses against loss of money and property due to criminal acts by employees. This can be valuable protection, but before you buy a policy, it is important to understand what you are getting.

What it does

In addition to covering businesses against theft of money, property, and securities, employee dishonesty insurance covers willful damage to property. If, for example, an employee smashes a computer or kicks a hole in a wall, it likely is covered. It also covers losses from all employees. However, coverage is based on occurrences, so if more than one employee is involved in a single theft, the payout is based on that single occurrence.

Rates and deductibles typically depend on your business’s level of risk. Separate employee dishonesty insurance policies are likely to have higher loss limits and more customized coverage than is available with coverage offered as part of a business insurance package.

What it does not do

Employee dishonesty insurance is not liability insurance. It covers only property your business owns, holds for others, or is legally liable for. It usually does not cover theft or damages caused by employees of businesses that provide services to your company.

Employee dishonesty insurance also generally will not cover loss of:

• Intangible assets such as trade secrets or electronic data
• Loss of employees’ property
• Damage covered by another insurance policy
• The unexplained disappearance of property (In other words, even if you believe something has been stolen, it is not covered unless you can prove the theft)

The burden of proof for employee dishonesty claims is solely on the policy owner. Insurance companies will pay claims only if there is conclusive proof that employee theft caused a loss.

Finally, employee dishonesty insurance is not a substitute for a fidelity bond if a bond is required by a funding source or other contractual agreement. Federal Bonding Program bonds, intended to encourage employers to hire hard-to-place applicants, reimburse employers with no deductible for loss due to employee theft.

Consider your options

Your business can cover theft losses in many ways, including with commercial general liability policies or fidelity insurance. Consider your options before buying employee dishonesty coverage. Also keep in mind, strong internal controls can vastly reduce your risk. We can help you establish a comprehensive risk-reduction program.