Employee Theft Coverage: Do You Have It?

While most business owners would prefer to believe they've done a wonderful job screening their potential employees before hire, the truth of the matter is that no one is perfect. Not you. Not your valued employees. No one.

For some, however, this point will not hit home until they are faced with a situation they never quite imagined possible. Imagine being a small business owner, walking into the office one day to realize one of your employees has embezzled hundreds -- maybe even thousands -- of dollars.

What would you do?

If you have a good insurance portfolio, you'll call your insurance agent and file a claim against your employee theft policy. If you don't have a good insurance portfolio, you'll call your insurance agent and end the phone call angry, confused, and wondering what to do next.

Employee theft coverage is an incredibly important aspect of any business's insurance portfolio. While we would prefer to trust our employees, the reality is that they are as capable of committing crimes as anyone else. You may go through your entire career without ever having a problem and even if you do, the money spent on this type of insurance coverage will prove to be money well spent.

So what does an employee theft policy cover? The policy generally provides coverage for theft of property, securities, and money. ERISA, otherwise known as the Employee Retirement Income Security Act, mandates that all employers purchase coverage to protect employee benefits. If you have an employee benefit plan, you'll be required to purchase coverage in an amount that equals at least 10 percent of the funds in the account, with a minimum limit of $1,000 or a maximum limit of $500,000. Employee benefits include not only retirement accounts, but insurance policies, pension plans, profit sharing plans, and more.

Having insurance does not, of course, negate your responsibility to properly screen potential employees. Not unlike other types of coverage, employee theft policies come with their own rules and exclusions. Some companies include exclusions that stipulate that your coverage will not apply if you have a claim caused by an employee who has been previously convicted of theft.

Still not convinced?

Once upon a time there was a small insurance agency with a dedicated commercial insurance team. Each customer service representative was assigned a specific book of business to handle, and the representatives had one-on-one contact with each client.

Agency policy allowed the payment of invoices in cash. Customer service representatives would take the cash payment to the accounting department, obtain a receipt, and give it to the client. The accounting department would then cut a check and mail it to the insurance company.

One of the agency's customer service representatives, for whatever reason, decided she needed some extra cash. Instead of taking her payments to accounting, she kept a second receipt book in her desk drawer. She would write a receipt, give it to the client, and see him to the door. She would then pocket part of the cash and take the remaining cash to accounting to get a receipt for the lesser amount. When cancellation notices came in for non-payment of premium, she would simply skim cash off of another client's payment. It became a huge game of catch-up, keeping some money for herself and making sure the policies in question never canceled for lack of payment.

She was eventually caught but not before she had managed to pocket more than $60,000.

We're not just talking about a $60,000 loss, either. We're talking about $60,000 this insurance agency had to pay to its insurance company partners to make sure their clients accounts were not put in jeopardy.

So what should you do if you suspect one of your employees is stealing? The most important thing to remember is you should not, under any circumstances, attempt to investigate or approach the employee on your own. As difficult as it may seem, you simply must call either a private investigation or security firm and/or the police right away. Doing so will help you to prove your claim when it comes time to make a report under your employee theft policy.

As a business owner with employees, there is simply no reason for you to go without employee theft coverage. Talk to your insurance agent about adding this critical coverage to your portfolio today. You won't regret the purchase.

Jennifer Blanche is a professional writer with more than 10 years of experience in the education industry. She specializes in topics concerning online education, distance education, online degrees, and personal finance.