Employee Benefits Insurance Guide

Employee Benefits Insurance - Introduction

Imagine you own and manage a fitness center, and you hire a new full-time employee named Ashley to manage the front desk. Ashley fills out the paperwork for the company-sponsored health insurance plan and passes off the paperwork to the human resources department.

Unfortunately, HR makes an error and the paperwork never gets filed. A year later Ashley ends up in the emergency room and is stunned to discover she doesn’t have actually the health insurance coverage she thought she did. She sues your company and holds you liable for damages.

Situations like this happen all too often, and unfortunately, many companies aren’t prepared to deal with them. The best way to protect your business from these kinds of situations is to purchase Employee Benefits Liability insurance.

What is Employee Benefits Insurance?

Companies with generous benefits packages attract better talent. Because of this, your company may offer several employee benefits like health insurance, dental coverage, and vision care.

However, the same benefits package that helps you attract new employees can also result in a lawsuit if mishandled. That’s because even minor administrative errors can cause major problems with employee benefits, leaving your company vulnerable to a lawsuit. For example, failing to follow through on an employee request to change the beneficiary on their life insurance policy could result in major problems down the road.

For that reason, we recommend your company purchases Employee Benefits Liability insurance. The coverage protects from any lawsuits stemming from administrative errors. It covers health insurance, retirement plans, maternity leave, and other benefits.

Do I Need Employee Benefits Liability Insurance?

Employers often wonder why they would need EBL coverage when they’ve already bought several other business insurance policies.

The reason is that a situation like Ashley’s would not be covered by a General Liability policy: Ashley wasn’t involved in a workplace accident and she didn’t sustain any physical injuries. Instead, your company’s mistake caused her a financial hardship. And this financial hardship is not covered under a General Liability policy (unless it has an Employment Benefits Liability endorsement added).

EBL insurance is designed to protect your business against lawsuits related to the mismanagement of benefits. This protection includes benefits services, employee records, the enrollment or termination of an employee benefits package, and many others.

As a general rule, if your business offers benefits plans to your employees and has employees who manage those programs, then your company needs Employee Benefits Liability coverage.

Employee Benefits Liability Coverage

Employee Benefits Liability coverage should not be confused with other types of policies, like Fiduciary Liability insurance. EBL coverage is designed to protect your company from administrative errors made while offering benefits plans. Fiduciary Liability insurance protects businesses from liability for a breach of their fiduciary duty such as giving counsel, advice, and interpreting Employee Benefits plans.

For example, if you were to make an incorrect prediction about how a 401(k) plan will perform, or offer your employee poor financial advice those claims would not be covered under Employee Benefits Liability insurance. It only protects the company in the case of an administrative error in the management of a benefits plans.

The policy covers administrative errors in the following benefits plans:

  • plans, such as a pension, retirement plan, stock options, and profit-sharing
  • all types of insurance, such as health coverage, life insurance, dental, and vision
  • paid maternity leave or holidays
  • other miscellaneous benefits such as Worker’s Compensation or tuition reimbursement

How much does Employee Benefits insurance cost?

The cost of your policy will vary depending on the needs of your company, but EBL insurance tends to be one of the most affordable types of insurance. You can typically add $1M in coverage for around $180-$350 a year, depending on the carrier. A limit and a deductible amount is applied per employee.

Coverage does vary per policy, and it can be included under an umbrella policy. You should check the terms of your policy for an understanding of the costs and coverage terms.

Employee Benefits insurance - conclusion

Running any company with employees is a challenge with lots of moving parts. And when you offer your employees benefits, it’s easy for an error to slip through the cracks — and the smallest error can have serious financial repercussions.

If you provide your employees with benefits packages like health or life insurance, you should consider purchasing Employee Benefits Liability coverage. It covers any costs that result from administrative errors of employee benefits.

Chat with us to learn more about your Employee Benefits Liability insurance needs.

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P.S. Check out our blog or our Insurance Guide Section to learn even more.