Fiduciary Insurance Coverage: How Is It Different from Fidelity Bond?

Fiduciary insurance coverage protects your business as well as fiduciary from lawsuit claims arising from mismanagement or mishandling of funds. Most of the businesses has employee benefit plans. Such benefits can lead to skillful human resource to join your team. However, a breach of fiduciary duty or theft of fund can lead to legal claims. Moreover, those who breach fiduciary role are likely to lose their personal assets as well due to expensive legal settlement costs.  

Business owners are often confused between fiduciary insurance and fidelity bond. But the difference between the two policies are quite simple. Fiduciary insurance coverage indemnifies for lawsuit claims arising from breach of employee benefit plans whereas fidelity bond covers for employee’s dishonest acts.  

fiduciary insurance coverage

Difference between fiduciary insurance and fidelity bond coverage 

Fiduciary insurance and fidelity insurance covers for different types of claim. Let us look at how each of the policy can protect our business. 

  1. Fiduciary insurance 

Fiduciary insurance protects your business from following claims: 

  • Careless selection of service providers 
  • Improper investment of the fund 
  • Making changes in the employee benefits plan without permission 
  • Loss due to Inadequate counseling 
  • Mistakes in administering the plans 
  • Not disclosing retirement plans properly 
  • Misuse of employee benefit fund 
  • No providing the benefits as promised 
  • Conflict of interest 
  1. Fidelity Bond 
  • Fraud and embezzlement acts 
  • Theft from customers 
  • Identity theft by employee 
  • Theft of business assets and 
  • ERISA fidelity bond to cover for theft of money from employee benefit plans 

Which coverage is best for your business? 

If you own a small business and do not have any employee benefit plans, fiduciary liability insurance may not be necessary for you. According to DOL, the primary responsibility of fiduciaries is to run the plan solely in the interest of participants and beneficiaries. Failure to do so can lead to lawsuit claims. So, businesses which implement benefits plans such as pension, retirement plans, etc. should have fiduciary insurance.  Moreover, ERISA recommends such businesses to invest in adequate amount of coverage.  

You should also make sure that the third-party who manages the fund also has insurance policy. Willis Towers Watson has mentioned that the supreme court have heightened fiduciary risks. The fiduciary insurance will only cover for your employees and business. It does not extend the coverage to third-party.  

Although state regulation does not mandate companies to have fidelity bond, it is also highly recommended. Firms that need to frequently interact with clients and customer should consider getting fidelity bond. It is because dishonest employees can misuse the credit card information of the clients. Moreover, identity theft and fraud are common cases in business. Such acts will not only lead to financial loss but also reputational damage.  

If your employee commit fraud, you can reimburse the customer right away with the help of fidelity bond insurance. Hence, you should evaluate your business risk and considering getting both the coverage. No matter how professional employees you hire, fraudulent activities can still exist within business premise.  

fiduciary insurance coverage

Key Takeaway 

Fiduciary liability and act of fraud and embezzlement by employees, both can cost massive amount to the company. Thus, it is best to protect your business today with the right amount of coverage.