Overview
Employee dishonesty and workplace fraud—such as theft, embezzlement, forgery, and computer-related schemes—can cause significant financial harm to businesses of any size. Smaller firms are often more vulnerable because they may not have the internal controls or resources to detect and absorb losses quickly.
Insurance commonly labeled Employee Dishonesty, Crime Coverage, Fidelity Bond, or Crime Fidelity insurance can transfer some of that risk by covering losses caused by wrongful acts of employees and others under your control.
Key takeaways
- Employee Dishonesty insurance covers financial loss from fraudulent acts by employees and often by partners, trustees, and directors.
- Coverage options vary; common limits start around six figures and can be tailored for computer fraud, funds transfer, and forgery.
- Smaller businesses should evaluate exposure to cash handling, securities, and electronic funds transfer when choosing limits.
How it works
Policies typically pay for direct financial loss caused by dishonest acts of employees, and many extend to former employees, volunteers, seasonal staff, and temporary workers under your supervision.
Claims usually require proof of loss, documentation of the dishonest act, and cooperation with the insurer's investigation. Some coverages have discovery provisions that determine when a loss is considered discovered for policy purposes.
What it may cover (and what it may not)
Typical covered losses include theft of money or property, embezzlement, forgery or alteration of documents, fraudulent transfers of funds, computer fraud, and counterfeiting of cash or negotiable instruments.
Policies often exclude certain types of loss such as honest mistakes, contractual liabilities, or losses resulting from fraudulent acts committed by owners or partners unless specifically included; coverage for third-party theft or cybercrime may require separate endorsements.
Common mistakes to avoid
Assuming a basic business owners policy will automatically cover employee theft is a common error; many BOPs have limited or no employee dishonesty coverage unless endorsed.
Choosing limits based only on premium cost rather than on actual exposure—such as average cash on hand, frequency of electronic transfers, and receivables—is another frequent mistake.
Failing to maintain good internal controls, documentation, and separation of duties can both increase fraud risk and complicate claims handling.
Questions to ask an agent
What specific employee roles and types of workers (temporary, seasonal, volunteers) are included or excluded under the policy?
Are computer fraud, funds transfer fraud, and forgery covered automatically, or do they require separate sublimits or endorsements?
What discovery period and proof-of-loss requirements apply, and how are retroactive acts handled?
Next steps
Start by assessing your exposures: cash handling practices, use of electronic fund transfers, and who has access to financial accounts and systems.
Compare policy forms and limits, and consider adding endorsements for computer fraud or funds transfer where needed; you can review options tailored to businesses like yours, including specialized offerings, by visiting Employee and Third Party Dishonesty Bonds.
If you handle cash, securities, or have significant receivables, see additional resources on Fidelity Insurance and broader protections such as Protect Your Business from Financial Devastation with Commercial Crime Coverage Insurance to determine appropriate limits and endorsements.
When you're ready to get specific pricing or to talk to an agent, gather documents that show cash activity, bank reconciliation procedures, and a list of employees with financial access to speed the review.
Frequently Asked Questions
Who is covered by Employee Dishonesty insurance?
Policies usually cover current and former employees, and may include partners, trustees, directors, volunteers, temporary and seasonal workers if specified in the policy.
Does my business owners policy include employee theft coverage?
Not always; many BOPs provide limited or no coverage for employee dishonesty without a specific endorsement or separate policy.
How do insurers determine the right coverage limit?
Insurers look at exposures such as cash on hand, securities handled, frequency and volume of electronic transfers, and historical losses to recommend limits.
Are computer fraud and funds-transfer fraud typically covered?
They may be covered but often require specific endorsements or sublimits, so confirm these details with your agent or in the policy language.