How To Protect Your Business From Employee Theft and Fraud

Employee dishonesty insurance helps protect against embezzlement, petty theft and more that your employees commit against your business. Without this commercial insurance coverage, your business may have to cover these losses out of pocket, which could result in significant financial burdens depending on the extent of the employee’s dishonest actions.

Keep reading to learn more about employee theft coverage, including what businesses need this insurance and how much to expect in costs.

On This Page

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  What Is Employee Dishonesty Insurance?

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  How Does Employee Dishonesty Insurance Work?

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  What Does Employee Dishonesty Insurance Cover?

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  Why Is Employee Dishonesty Insurance Important?

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  How Much Does Employee Dishonesty Insurance Cost?

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  Are There Ways To Prevent Employee Dishonesty?

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  How To Get Employee Dishonesty Insurance for Your Business

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  FAQs

What Is Employee Dishonesty Insurance?

Employee dishonesty insurance, also known as employee theft insurance, is a form of business insurance coverage that protects your company against employee fraud and theft. For example, if your employee uses a company credit card for personal expenses, you may be able to recover losses from those charges up to your insurance policy limit.

This type of insurance can provide peace of mind and prevent bankruptcy or other financial burdens caused by harmful employee actions. You may be able to secure employee dishonesty coverage by purchasing a fidelity bond, a commercial crime insurance policy or an add-on to your business owners policy (BOP).^[1][2]

How Does Employee Dishonesty Insurance Work?

Depending on your insurance company, employee dishonesty policies may be written as either loss sustained or discovery base. A discovery base policy covers criminal actions discovered during the policy period, regardless of when they occur. For example, if one of your employees started embezzling money before the policy period began but you discovered the dishonesty after your policy became active, you could still file a claim.^[1]

On the other hand, a loss sustained policy only reimburses you for losses that occur during the policy period, with some policies providing you the option to extend your discovery period by up to one year after your policy expires.^[1]

You may not need to know which employee is responsible for dishonest acts to be reimbursed for your losses, but this may vary based on the details of your individual policy.^[2]

Who Needs Employee Dishonesty Insurance?

Businesses that allow their employees to access business finances, such as nonprofits and medical offices, are potentially at risk of experiencing employee theft and could benefit from fidelity bond coverage. Businesses where employees regularly handle cash, such as banks and retail stores, would also want to consider this coverage to protect against petty theft.

Furthermore, employee theft coverage is required by law for certain businesses and employees. For example, fiduciaries who manage employee pension and benefit plans must be covered by Employee Retirement Income Security Act (ERISA) bonds that protect against dishonest actions.^[3]

What Does Employee Dishonesty Insurance Cover?

Employee dishonesty insurance coverage may vary based on the policy, but it typically covers the following situations:^[2]

What Isn’t Covered?

Your employee dishonesty coverage will often exclude coverage in the following scenarios:^[2]

• Theft by a business partner or owner
• Employee dishonesty from someone with a known record of dishonest acts
• Losses caused by a data security breach
• Losses due to the disclosure of personal information
• Vandalism

Without an additional endorsement, this coverage type may exclude thefts perpetrated by volunteers, as they are not official employees of a company. In addition, it may not cover lost income due to business interruptions stemming from employee dishonesty.^[1]

Since employee dishonesty coverage exists to cover crimes employees commit against your business, your policy likely won’t reimburse you if your employee carries out a criminal act unrelated to your business, like robbing a convenience store.

Likewise, it may not reimburse you for crimes committed by customers and other non-employees.

Why Is Employee Dishonesty Insurance Important?

Employee dishonesty insurance helps reimburse you after a covered loss, which can be destabilizing for your business. Purchasing this coverage provides peace of mind and gives you the confidence to allow employees to perform necessary tasks involving company assets, sensitive information and cash.

How Much Does Employee Dishonesty Insurance Cost?

Employee dishonesty coverage through a fidelity bond typically costs 1% to 3% of the coverage amount.^[4] For example, for a bond with limits of $20,000, employee dishonesty coverage premiums could be between $200 and $600 per year.

Costs and coverage may vary if you get employee dishonesty insurance as an add-on to your BOP. For example, Huckleberry offers an employee dishonesty coverage endorsement to BOPs for a flat fee between $100 and $200 per year.^[2]

Prices may vary due to factors relating to your business, including your number of employees, your desired courage limits and your company’s total revenue. Additionally, if your company can showcase high levels of security and protection against malicious employee actions, that may help reduce your premium costs due to lowering the risk of a claim. Conversely, companies with a history of employee theft claims may see a higher rate due to a perceived increased risk.

Are There Ways To Prevent Employee Dishonesty?

You can help reduce employee dishonesty by being more thorough when reviewing employee purchases. For example, cross-checking sales made with money deposited to see if there are any differences can help you discover if money was removed and an employee may have committed theft. Meanwhile, security measures such as locks and safes can lower your exposure to theft, while security cameras and guards can provide evidence in the event of employee dishonesty and deter malicious employees.

Ensuring you perform thorough background checks on your employees helps reduce the chance of hiring someone with a history of crimes. Also, you’ll want to ensure you have proper training on procedures and documentation. For example, if an employee isn’t adequately trained on counting the daily cash deposit, they may misplace or miscount, resulting in discrepancies that appear the same as theft.

How To Get Employee Dishonesty Insurance for Your Business

You’ll need to get quotes from different insurance companies to understand your options for coverage and premiums, as companies may vary in how they underwrite. Consider getting three to five quotes to see what’s available. You’ll typically need to provide information about your company, including any history of employee theft, your revenue and your number of employees. This process may become tedious if you opt to go to each insurer one by one.

You can speed up this process by using an insurance marketplace like SmartFinancial. After answering a brief questionnaire, we can connect you with a licensed insurance agent to help you get the commercial coverage your business needs. Click here to get a free commercial insurance quote today!