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’s important to understand what you’re 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’s likely covered. And it 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. But 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 doesn’t do

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

Employee dishonesty insurance also generally won’t cover loss of:

• Intangible assets such as trade secrets or electronic data,
• Loss of employees’ property,
• Damage covered by another insurance policy, and
• The unexplained disappearance of property. (In other words, even if you believe something has been stolen, it’s 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 isn’t 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 a number of ways — including with commercial general liability policies or fidelity insurance. Consider all of your options before buying employee dishonesty coverage. Also keep in mind that strong internal controls can vastly reduce your risk. I can help you review your internal controls and refer you to a strategic partner that can establish a comprehensive risk-reduction program.