As a business owner, you need to be aware of all the potential threats to your growth and success. Some of them are obvious like natural disasters or the usual property wear and tear like faulty pipes or wiring.
However, one of the most damaging threats comes from an unlikely source– your own employees. And unfortunately, those types of damages aren’t always covered in your standard business insurance.
Employee theft affects businesses worldwide. Researchers reported that employers lose almost $3 trillion annually across the globe. However, if we look inside the U.S., Security Magazine says it’s the little guy hit the most. Midsized and small businesses represented about 68% of all the employee theft cases and the median losses for everyone were at about $290,000.
So just because you’re a small business, doesn’t mean you are safe. And if you’re not properly protecting your business, it’s possible you might not be able to recover your losses if you don’t have the right insurance policy.
In this article, you will learn how to keep your business safe from dishonest employees and what type of insurance you need to look for.
What Exactly Is “Employee Theft”?
Simply, employee theft is when someone you’ve hired to work for you steals either money, merchandise, or equipment that causes damages to your business. You can also include other nefarious activities like check/credit card fraud, embezzlement, and forgeries.
Under most insurance policies, the term “employee” is strictly defined. And they often have exclusionary clauses that can easily disqualify a claim. So it’s important that you carefully read and understand how the policy works.
There have been many lost legal cases where the policyholder reports damages but isn’t able to recover losses due to the difficulty of proving it fit the insurer’s definition of “employee theft.”
How Does Business Insurance Cover Employee Theft
Are Volunteers or Unpaid Interns Covered Under Employee Theft Insurance?
If you’re a non-profit or research organization, you might rely a lot on unpaid help. And typically, employee theft insurance does not include people who aren’t on the payroll. However, in most policies, there’s a way to add an endorsement, which will extend coverage and protection for these people.
Are Independent Contractors Considered “Employees”?
While some insurance companies might classify independent contractors as employees, most probably won’t. So if your business relies heavily on contracted help, make sure your policy covers these types of workers. If not, you could be left high and dry should one steal from you and your business.
For more detailed answers, you should consult with an insurance agent to find the best policy that fits your needs.
Will My Commerical Business Insurance Cover Employee Theft?
In most cases, the answer will likely be no. Most insurers that provide commercial coverage include acts of theft from a third party. For example, if you’re business is burglarized, they will reimburse you as the policy says.
However, some will include language that may exclude theft from you, employees, and anyone else directly involved in the inner workings of the business. For this, we will have to turn specialized coverage aimed to take care of that area.
How Will Employee Theft Insurance Protect My Business?
Insurance carriers often provide a line of coverage that’s typically called business crime insurance. That’s where we can find employee theft insurance– which can also be called “employee dishonesty coverage” or “fidelity insurance.”
Policies will vary from company to company, but in general, they will cover financial losses and damages caused by an employee stealing. This can come in many forms but will often include things such as:
- Property Theft (work equipment like computers, etc.)
- Stealing Cash
- Credit Card Fraud
- Unauthorized Transfers
- Check Fraud
- Payroll/Billing Fraud
This list isn’t exhaustive by any means and some insurers may offer more or less coverage.
What Is Excluded From Coverage In Employee Theft Insurance?
As there a many different types of policies out there, it’s difficult to say exactly what’s included and what’s not. But as a general idea, here are some of the common things that aren’t covered in these policy lines:
- Crimes committed by you and/or your partners
- Indirect losses
- Employees with past history of theft (background checks are important)
- Salaries/bonuses paid to employees who get caught stealing
- Third-party crimes
- Legal fees when bringing those caught to court
- Data that’s stolen from a network/computer breach
Again, this list is far from complete. If you want more detailed information, it’s best to contact your insurance agent to see what they have available for you.
If you run a business where you send people to a client’s house– like a moving company or house cleaning– then this is a very important aspect for you to consider. For example, if one of your people steals an expensive piece of jewelry or cash from the client, your company holds some general liability for that, right?
In this case, you’d look to see if there’s a way to extend your coverage over to a third party. This just shows the different ways you can use insurance to cover your company’s specific risk profile.
We know you don’t want to have negative thoughts about the people under you, but you need to be vigilant to run a successful business. A woman in Cape Cod got away with over $1 million stealing from her two employers– and as mentioned above, there are trillions of dollars in damages done yearly across the world.
Having the right insurance coverage can give you peace of mind should the worst happen.