Offering employee benefits is part of what creates a healthy work culture. A good benefits package attracts new talent and helps retain current ones. But to be successful, benefits must be managed properly. Mistakes in administering benefits can cause lawsuits against your company and trouble for your employees.
To help protect your business when administrative errors occur, we’ll help you understand what employee benefits liability insurance is, what it covers, and why it’s important.
What Is Employee Benefits Insurance?
Employee benefits insurance is important because it signals to your employees that you care about them. A good benefits package can make employees feel rewarded and appreciated, and some studies show that almost half of all employees will begin looking for a new job within a year of employment if they’re dissatisfied with the benefits offered.
High turnover rates are costly and create a bad image, so offering a competitive benefits package and understanding how to manage employee benefits is in your best interest. A typical employee benefits insurance package may include the following:
- Medical insurance
- Life insurance
- Disability insurance
- Retirement plans
What Is Employee Benefits Liability Coverage?
While a benefits package includes insurance for your employees, employee benefits liability (EBL) is there for you and your business. EBL is insurance that protects your business from errors and omissions that may occur when employee benefit plans are rolled out.
For instance, errors and omissions pertaining to the failure to enroll an employee, maintaining or terminating employees in a plan, or failing to correctly describe the benefit plans and eligibility rules are covered under a typical EBL plan. In more detail, these examples could look like the following:
- An HR employee accidentally erasing an employee’s electronic file or losing his or her paper file.
- An HR employee mistakenly telling an employee that their family member (not their spouse or child) they share a home with is eligible for the company-sponsored health insurance plan.
- An HR employee failing to enroll a fellow employee in the company-sponsored health insurance plan.
EBL insurance covers a wide range of plans — from health, dental, and life insurance to workers’ compensation, profit-sharing, and employee stock plans.
EBL Insurance In the Real World
If you were to fail to enroll an employee in a company-sponsored health insurance plan — such as in the scenario above — EBL could limit your business’s financial losses. For instance, if that employee got into an accident, only to find out they’re not actually enrolled in the insurance they thought they were, the enrollment issue would fall under an error or omissions mistake.
EBL coverage also protects employers from certain Affordable Care Act (ACA) and workers’ compensation claims.
Types of Benefits Covered by Employee Benefits Liability Coverage
While not a substitute for risk management, EBL insurance does help minimize your company’s exposure from errors and omissions made in the course of benefits administration. With that in mind, EBL insurance will cover the following benefits:
- Health insurance
- Dental insurance
- Disability insurance
- Life insurance and other voluntary benefits
- Maternity leave
- Unemployment insurance
- Retirement plan benefits
- Social security benefits
- Workers’ compensation
- Vacation benefits
While not exhaustive, this list does showcase the wide variety of coverage a good EBL plan can offer.
What Are the Limits of Employee Benefits Liability Insurance?
There are usually two separate limits to EBL insurance: an employee limit and an aggregate limit.
The employee limit refers to the maximum amount of money an insurer will pay for any incurred liabilities from an individual employee, relatives, or their beneficiaries. Some policies may include clauses that put a ceiling on the claim value instead of an individual employee.
Other liability policies can include a deductible that represents the maximum out-of-pocket expense an employer could incur for any individual employee who files a claim.
The aggregate limit is the maximum amount of money an insurer will pay for liabilities that occur from administrative errors and omissions.
EBL vs. EPL
While they sound similar, EBL differs from EPL — which stands for Employment Practices Liability insurance — which is used to protect businesses against exposure that could come from employment-related claims. These claims can range from discrimination, wrongful termination, and sexual harassment.
Employee Benefits Liability exists to reduce an employer’s liability that may stem from gaps that aren’t covered by a Commercial General Liability policy. It’s important to note that, while EBL can cover errors and omissions committed by HR departments in benefits administration, there are certain actions that are excluded from coverage.
A few examples of common exclusions include, but are not limited to:
- Malicious, dishonest, or fraudulent criminal acts committed on the employer’s liability insurance
- Failure to pay premiums or fund an employee benefit program
- Poor HR policies or financial advice that impact an employee benefits program
- Property damage or bodily injury that could result in a workers’ compensation claim, personal injury, advertising injury, or any other type of employer’s liability covered under a general liability policy
- Allegations, claims, or lawsuits filed against a federal employee
- ESRIA violations and workers’ comp claims under the Act
- EPL-rated practices covered under employer’s liability insurance
How Much Does Employee Benefits Liability Insurance Cost?
The cost of EBL coverage will vary depending on a number of circumstances. It primarily depends on the number of employees the policy is meant to cover. Most businesses should expect a deductible of around $1,000 for each claim filed. Nonetheless, EBL insurance is one of the most affordable commercial insurance policies.
Do You Need EBL Coverage?
Whether or not you need EBL coverage depends on a few factors — primarily how many employees you have and the types of benefits your business provides. For instance, a company with only a few employees that offers no benefits will obviously not require this coverage.
If your business employs more than a few workers — and you offer benefits — then you should definitely add EBL insurance to your existing risk management plan.
EBL Coverage and Risk Management
Risk management helps you think beyond just your commercial insurance policy. As a proactive way to help you prepare for potential problems, including EBL coverage as a part of your overall commercial insurance and risk management coverage will help you create an all-encompassing plan so you can get back on your feet and protect your business’s bottom line.