Keep Your Business Compensation Packages Safe With Employee Benefits Liability Coverage

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Employee benefits liability is a type of commercial coverage that insures your business against claims that you mishandled an employee’s compensation package. It can cover legal expenses and reimburse employees for lost benefits if someone in your company makes an error in administering employee benefits.

Read below to see the kinds of situations that are covered by employee benefits liability insurance and how you can purchase it for your business.

Key Takeaways

  • Employee benefits liability coverage insures businesses against lawsuits that arise due to errors and omissions in the administration of employee benefits.
  • This coverage type applies if you fail to enroll an employee in the proper plan or give them inaccurate information about their insurance, retirement, paid time off or other benefits.
  • Employee benefits liability insurance is similar to but provides less coverage than fiduciary liability coverage, which covers poor financial advice, unsuccessful investments and insufficient funding.
  • Your employee benefits liability policy won’t cover intentional acts of mishandling employee benefits or anything that is already covered by general liability insurance or another commercial coverage type.
  • It generally costs between $200 and $2,000 per year to maintain employee benefits liability coverage and you will likely have to pay a $1,000 deductible on each claim.

What Is Employee Benefits Liability Coverage?

Employee benefits liability (EBL) insurance covers your business in case your employees experience financial loss due to errors and omissions in the administration of their benefits. For example, this coverage type could pay for your legal defense if an employee who just submitted their two weeks’ notice sues you for prematurely canceling their employer-sponsored health insurance.

It can also cover legal judgments and settlements or otherwise make up for an employee’s lost benefits. For example, if someone in your human resources department fails to set up a new hire’s retirement plan until three months after the benefit was supposed to begin, employee benefits liability insurance could pay out the amount of money the employee’s retirement account would have accrued over those three months.

How Does Employee Benefits Liability Coverage Work?

Generally, two separate coverage limits come into play with an employee benefits liability policy. The employee limit is the maximum amount of money your insurance company will pay toward a single claim while the aggregate limit is the total amount your insurance company will pay toward all claims over the course of the coverage period.

You can generally expect to pay a $1,000 deductible on each employee benefits liability claim.[1] Depending on your insurance provider, employee benefits liability coverage may be available as a standalone policy or an endorsement for your general liability insurance policy.

What Does Employee Benefits Liability Cover?

Employee benefits liability insurance covers administrative errors regarding employee benefits such as the following:

  • Health insurance and flexible spending accounts
  • Life insurance
  • Dental insurance
  • Vision insurance
  • Unemployment and disability insurance
  • Workers’ compensation
  • Parental leave
  • Vacation benefits and paid time off
  • Tuition reimbursement
  • Stock ownership plans
  • Pensions, 401(k) plans, profit-sharing plans and other retirement benefits
  • Social Security

Your employee benefits liability policy should cover any unintentional error that causes an employee to miss out on benefits they should have received. This could include losing a new employee’s enrollment paperwork, forgetting to enroll them, signing them up for the wrong benefits package or failing to match an employee’s 401(k) contribution as promised.

In addition, this coverage type insures you if an employee receives inaccurate information about their benefits. For example, if one of your managers mistakenly tells an employee that their life insurance policy applies to their whole family, employee benefits liability insurance could cover legal expenses if that employee unsuccessfully tries to claim a death benefit after their spouse dies and then sues your business.

What Isn’t Covered?

Employee benefits liability insurance doesn’t cover fraudulent, dishonest or criminal actions, meaning you won’t be covered if you intentionally withhold an employee’s benefits. It also doesn’t cover claims of bodily injury, property damage or personal and advertising injury since these are already covered by general liability insurance.

Similarly, employee benefits liability coverage doesn’t apply to situations that are already covered by fiduciary liability insurance. Fiduciary liability insurance covers fiduciaries if they give poor financial advice to your employees, make poor investment decisions with employee retirement accounts or fail to secure sufficient funding for employee benefit programs.[2]

How Much Does Employee Benefits Liability Coverage Cost?

An employee benefits liability policy with a $1 million aggregate limit generally costs between $200 and $2,000 according to Dennis Shirshikov, the head of growth at and former managing editor at the Global Association of Risk Professionals.

Your exact premium will depend on the nature of your employee benefit program, the size of your company and your prior claims history.

“Firstly, companies offering more extensive benefits packages often have higher insurance costs because of the increased potential for administrative errors,” Shirshikov told SmartFinancial in an email. “Secondly, more employees typically mean higher insurance costs due to increased likelihood of mistakes or misunderstandings. Lastly, companies with a history of making insurance claims related to employee benefits may face higher premiums.”

Shirshikov also noted that employee benefits liability insurance can be cheaper if you buy it as an add-on to your general liability policy but that it may provide more comprehensive coverage if you purchase it as a standalone policy.

What’s the Difference Between EBL and EPL?

While employee benefits liability insurance covers mistakes in the administration of employee benefits, employment practices liability (EPL) insurance covers alleged violations of employee rights. For example, employment practices liability insurance would cover legal expenses if an employee accuses you of wrongful termination, discrimination, harassment, retaliation, breaching their contract or depriving them of a career advancement opportunity.

How Do I Get Employee Benefits Liability Coverage for My Business?

You can purchase employee benefits liability coverage from insurers that specialize in commercial insurance products like Dealer Protection Group, Hiscox, INSURICA, Sentry Insurance and World Wide Specialty.

It’s important to compare commercial insurance rates through an online insurance marketplace like SmartFinancial so you can see which company can offer you the most favorable quote and provide the best commercial coverage given your business’ needs and budget.

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What’s the difference between EBL and fiduciary liability?

Employee benefits liability covers unintentional errors and omissions in the administration of employee benefits while fiduciary liability covers poor financial advice, poor investment decisions, insufficient funding and other failures to perform one’s fiduciary duty.[2]

What is considered an employee liability?

An employee could file a liability claim based on a violation of their rights as a worker, an on-the-job injury or a failure on the company’s part to properly administer their benefits.

What are the most common EBL claims?

The most common employee benefits liability claim is that the company failed to pay out the employee’s benefits.[3] Workers can also file employee benefits liability claims based on inaccurate information they received about their employee benefit plans.


  1. Assurance Agency. “Fiduciary Liability vs. Employee Benefits Liability.” Accessed May 30, 2023.
  2. Thimble Insurance. “Employee Benefits Liability Coverage.” Accessed May 30, 2023.
  3. Euclid Fiduciary. “EBL Coverage Versus Fiduciary Liability.” Accessed May 30, 2023.

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