How to Bond Your Employees & Use Blanket Liability Insurance

How to Bond Employees and Use Blanket Liability Insurance

Any business with employees should consider a bond or blanket dishonesty insurance to protect the business and its customers from potential fraud. There are several simple steps to take in order to get the protection you need.

Things You'll Need

• Your employees' personal information, such as names, dates of birth, and social security numbers.
• The financial statements for your business

Instructions

Protecting Your Business

1. Ask yourself who in your organization has access to funds, handles money, or has any opportunity for fraud. You will be able to secure either a named individual bond (covering any person you name) or a blanket bond (covering dishonest acts of all employees). Evaluating your employees and their roles will help you decide which bond is right for you.

2. Look at your books. Examine the level of cash flow that is taking place and look for areas where an employee could manipulate incoming or outgoing funds without drawing much attention. When you isolate these areas, ask yourself how much could potentially be taken, then use that figure for the bond or insurance amount you will buy.

3. Contact your insurance agent to request a quote. Before you buy a bond, or add an endorsement to your business policy, ask about the options available, and what types of fraud and dishonesty are covered. Will the bond cover theft from customers? Are owners, executives, and board members covered?

4. Decide whether you need a blanket or named individual bond. A blanket dishonesty bond covers all employees, while a named individual bond covers only specific employees. The more employees you have accepting or disbursing funds, the more likely it is you will want to buy blanket coverage. If you are using a named individual bond, you will need to submit an application with the individuals' personal information and signature of a company representative.

5. Advertise it. If you are a business that bonds employees for the protection of your customers (like a contractor or home health/hospice business) you may want to note this on your business cards and marketing materials. This will help customers feel at ease allowing you into their homes.

Tips & Warnings

• One advantage to a named individual bond is that each person you bond will need to complete an application which may be subject to a surety company's background check. This could be a benefit to employers who do not normally run background checks on employees.

• Good separation of duties is an excellent safeguard against fraud. For instance, the employee that has check writing authority should not be the same employee that balances the checking account.

• Some dishonesty coverage found in insurance policies only protects the employer. If you have a business that sends employees into the homes of your customers (contractors, cleaning service, home health care) you may need a separate bond that will indemnify customers if your employees steal from them.

• Many dishonesty bonds for janitorial services and contractors have a conviction clause, meaning that they only pay if your employee is actually convicted of theft.

References

• Independent Insurance Agents and Brokers of America:Employee Theft of Customers' Property

Resources

• Independent Insurance Agents and Brokers of America:Insurance and Bond Terminology