Employee Dishonesty Coverage 101

Employee theft can put companies out of business. In fact, one in three bankruptcies is related to employee crime. In the U.S. alone, employee theft costs businesses $40 billion per year. While policies and practices can be put in place to help reduce the risk of theft, there’s no surefire way to prevent employee crime.

Employee crime insurance can provide businesses with vital protection against theft and other employee crimes that can lead to bankruptcy.

What Is Employee Dishonesty Insurance?

Employee Dishonesty Insurance Definition

Employee dishonesty insurance protects your business from financial loss caused by employee theft. This can be theft of money, property or securities.

Employee crime insurance is also known as:

  • Crime coverage
  • Commercial crime insurance
  • Fidelity bond
  • Crime fidelity insurance
  • ERISA fidelity

Employee theft insurance policies can have limits ranging from $100,000 to $1 million. These types of policies can be either:

  • Loss sustained: These policies cover a loss incurred while the policy was active to the policy’s limits, OR
  • Discovery based: These policies cover losses incurred at any time, but the loss must have been discovered while the policy was active.

In most cases, policies only cover the owner of the business and its employees, partners, directors or other persons in key roles that are named in the policy. They are usually designated per employee, per loss or per position.

What is the Definition of an Employee?

Employee theft insurance will only covered employees as defined by your policy’s terms. While definitions can vary slightly from one insurer to another, generally, an employee is someone who:

  • You compensate via wages, salary or commissions.
  • You have the right to direct while performing services for your business.

Generally, owners and partners are not considered employees, but some policies do include people in these roles. It’s important to understand the terms and conditions of a policy before signing on the dotted line.

What Does Employee Dishonesty Coverage Include?

Employee dishonesty policies typically cover the following:

  • Forgery
  • Theft of money or securities
  • Computer fraud
  • Fraud
  • Embezzlement
  • Unauthorized fund transfers
  • Loss of property

Policies generally protect business owners against theft from:

  • Employees, including temporary and seasonal employees
  • Volunteers
  • Board members
  • Trustees
  • Independent contractors

Coverage will generally apply whether the perpetrator is identified and whether the person acted alone or colluded with others. 

What Isn’t Covered by Employee Theft Insurance?

Depending on the insurer and policy, theft from directors and officers may not be covered. A separate policy may be required for this coverage.

There are some other things employee crime insurance will not cover, such as:

  • Legal costs
  • Theft from a third party
  • Data breaches
  • Vandalism
  • Government seizure
  • Trading losses
  • Pollution, military action or nuclear war hazard
  • Losses caused by the disclosure of confidential or personal information

If an employee steals from your business and you decide not to fire him/her, any subsequent losses from thefts by that employee would not be covered by your insurance.

It’s important to note that theft of inventory may not be covered if the only proof of the theft is a profit and loss statement or an inventory shortage. You will need separate evidence to substantiate the loss, such as video evidence of the theft.

Who Needs Insurance Against Employee Theft?

Employee theft accounts for 42.7% of inventory loss and costs businesses billions of dollars per year. Unfortunately, it’s a common problem. In fact, up to 75% of employees have admitted to stealing from their employers.

Small and medium sized businesses often assume that they are at a lower risk of employee theft, but in reality, smaller businesses account for the majority of employee theft cases in the United States.

If you have employees, there’s a good chance that you will benefit from employee theft insurance.

  • If an employee is skimming money from your cash register, your policy will cover your losses up to the policy’s limit.
  • If an employee is charging personal expenses to your company credit card, your policy would cover this loss up to the limit.
  • If an employee is stealing products from your inventory, your policy would cover the loss.
  • If an employee steals materials or tools from a job site, your policy would cover the loss.

Small businesses tend to be more vulnerable to employee theft because they often lack the resources and expertise to protect against employee crimes. Data shows that long-term employees are more likely to steal than newly hired personnel. Furthermore, theft is often committed by employees that have no prior convictions, so background checks are not always a reliable way to gauge risk.

How Much Does Employee Theft Insurance Cost?

Employee Theft Insurance Cost

Every business has a budget, so cost is one of the main concerns when it comes to employee theft coverage.

On average, businesses pay about $650 per year for employee theft coverage. That’s a small investment for peace of mind and to protect your business against potential financial ruin. Employee theft can cost you thousands or even tens of thousands of dollars.

That being said, the cost of your policy may be higher or lower than this average. Premium costs depend on several factors, including:

  • The size of the business. The more employees you have, the greater the risk of theft and the higher the cost of your premiums.
  • Your industry. Business in high-risk industries, such as convenient stores and retail stores, may have to pay more for their policy.
  • The security measures you have in place. Having preventative measures and policies in place, such as security cameras and regular auditing procedures, may help reduce your premium costs.
  • Your annual sales. The higher your revenue, the greater the risk of significant losses.
  • Your claims history. If your business has a history of employee theft claims, insurers may view you as a higher risk and charge a higher premium.
  • Your property. If your business keeps a large amount of cash on hand or stores high-value property, there’s a greater risk of theft.

An insurance agent can help you get a more accurate price estimate.

Employee theft insurance can protect your business from significant financial losses that may otherwise bankrupt your company.