Why is Employee Benefits Liability Insurance Important?
As a business owner, you are probably already well aware that your employees may make or break your organization. Your staff team’s main priority is ensuring that everything in your business runs smoothly. So it makes sense that you would look after them in turn. Many employers offer a variety of group benefits packages to their employees, which can include various security options for health and finances. Benefits programs not only help out your employees, but they preserve your business as an investment, boost productivity, and provide tax-efficient compensation for your employees. They can even make your business more competitive as benefits programs can attract and recruit top talent.
However, if you have a benefits program, you have an employee benefits liability exposure. That’s not to say you shouldn’t offer these programs – but you should do your due diligence and protect your business.
What is Employee Benefits Liability Insurance?
Employee benefits liability insurance can be thought of as a type of errors and omissions insurance, except it is designed to cover losses arising from errors or misinformation regarding a company’s benefits plan. These losses may not only be costly, but they can be time-consuming and require a great deal of your business efforts to be diverted to solving the issue before it spirals out of control.
Employee benefits liability insurance may be designated to cover several different employee benefits plans, including profit-sharing plans, health, dental, life insurance, employee stock, and even workers’ compensation. If you offer any of these plans for your staff and do not have coverage, you may have an employee benefits liability exposure as you, as the business owner or administrator of the program, are responsible for any unintentional errors or omissions.
What Does Employee Benefits Liability Insurance Cover?
It is designed to cover enterprises, small and large, from potential financial losses in the event that there is negligence concerning a company’s sponsored health plan. Take, for example, the following scenarios where employee benefits liability insurance may apply:
- HR fails to enroll a new employee in the company’s health plan, and that employee falls sick or becomes injured unexpectedly.
- As the administrator of your company’s plan, you fail to explain the exact benefits of the plan and a staff member misjudges the extent of their coverage.
- HR makes an error that prevents a new employee from being enrolled in a plan, even if all the correct information was filled out by the worker.
- Your company’s contractors believe they are eligible to be deemed as full-time employees and therefore qualify for your company’s programs and file a lawsuit against you.
It may seem like a niche topic, but not having this type of insurance while your business provides a single benefits program or numerous programs leaves your organization exposed. It is imperative that your business acquire “EBL” (or employee benefits liability insurance). The business’ existing commercial general liability won’t include losses due to an administrative error.
What Doesn’t Employee Benefits Liability Insurance Cover?
As with any insurance policy, employee benefits liability insurance may contain some exclusions. EBL will not include coverage for any claims that may stem out of performance prediction or poor financial advice, nor will it cover any liability that you might have as the individual who has discretion of your benefits plan under the “ERISA” or Employee Retirement Income Security Act.
Fiduciary liability insurance, which is commonly confused with employee benefits liability, maybe a consideration to avoid any potential exposures for your business. Fiduciary liability insurance protects businesses from any Employee Retirement Income Security Act exposures for special plans as a result of an act of negligence, misinformation, or error. Fiduciary liability insurance is more extensive than EBL because it may also cover some administrative errors and claims of negligence as well, on top of your company’s liability for any breach of administrative duties.
What does Employee Benefits Liability Insurance cost?
There are a few variables that affect the cost of this coverage. The number of employees is the main pricing factor for EBL coverage. The second factor is the industry of the business. Here are a few of our first-hand experiences.
Example 1: A plastics manufacturer with 164 employees has an annual cost of $266 for this coverage.
Example 2: A medical office with 188 employees has their EBL coverage included in a general liability plus endorsement (GL Plus) that costs $350 per year.
Example 3: A commercial general contractor with 35 employees pays $171 a year for this coverage.
Do I Need Employee Benefits Liability Insurance?
Ask yourself this first…Do I offer employee benefits? If the answer is yes, then our answer to the above question is it’s a great asset to have this type of coverage. Insurance should never be a replacement for good business practice, risk management, and a rigorous hiring and screening process. However, it’s a good idea to have as a backup since we can never predict when issues may arise. In some cases, we may find ourselves faced with a lawsuit even if we have done nothing wrong but will still be required to defend ourselves in a court of law – which can be costly! It’s better to be safe than sorry.
If you have never considered the importance of EBL insurance before or were unaware of how it could support your business, discuss this with Hitchings Insurance Agency’s representatives.