Fiduciary Liability Insurance: Understanding the Basics

As a business owner, you have the responsibility of protecting your company and your employees at all times. One way to do this is by carrying fiduciary liability insurance. This type of insurance provides protection for businesses and their employees against claims related to the management of employee benefit plans.

What is Fiduciary Liability Insurance?

Fiduciary liability insurance is designed to protect businesses and their employees against claims of alleged breaches of fiduciary duty. This type of insurance is typically purchased by businesses that manage employee benefit plans, such as retirement plans, health insurance plans, and other types of employee benefit programs.

When a business manages an employee benefit plan, it is considered a fiduciary. As a fiduciary, the business has a duty to act in the best interest of the plan participants. If the business fails to do so and causes harm to the plan participants, the business can be held liable for any resulting damages.

Fiduciary liability insurance can help protect businesses and their employees from financial losses resulting from claims of alleged breaches of fiduciary duty. This type of insurance can provide coverage for defense costs, settlements, and judgments related to such claims.

What Does Fiduciary Liability Insurance Cover?

Fiduciary liability insurance typically provides coverage for the following:

Who Needs Fiduciary Liability Insurance?

Businesses that manage employee benefit plans are typically required by law to carry fiduciary liability insurance. However, even if your business is not required to carry this type of insurance, it is still a good idea to do so. Fiduciary liability insurance can help protect your business and your employees from financial losses resulting from claims of alleged breaches of fiduciary duty.

If your business offers any type of employee benefit plan, such as a retirement plan or health insurance plan, you should consider carrying fiduciary liability insurance. In addition, if your business is a trustee or executor of an employee benefit plan, you may be held personally liable for any losses resulting from your actions as a fiduciary.

How Much Does Fiduciary Liability Insurance Cost?

The cost of fiduciary liability insurance can vary depending on a number of factors, including the size of your business, the type and size of the employee benefit plans you manage, and the level of coverage you need. In general, smaller businesses with fewer employee benefit plans will pay less for fiduciary liability insurance than larger businesses with more plans.

To get an accurate idea of how much fiduciary liability insurance will cost for your business, it is best to speak with a licensed insurance agent. The agent can provide you with a quote based on your specific needs and circumstances.

Conclusion

Fiduciary liability insurance is an important type of insurance for businesses that manage employee benefit plans. This type of insurance can help protect your business and your employees from financial losses resulting from claims of alleged breaches of fiduciary duty. If your business manages any type of employee benefit plan, it is important to consider carrying fiduciary liability insurance.

FAQ

What is a fiduciary?

A fiduciary is a person or entity that is responsible for acting in the best interest of another party. In the context of employee benefit plans, a fiduciary is responsible for managing the plan in the best interest of the plan participants.

What is a breach of fiduciary duty?

A breach of fiduciary duty occurs when a fiduciary fails to act in the best interest of the party they are responsible for. In the context of employee benefit plans, a breach of fiduciary duty can occur if the fiduciary fails to properly manage the plan or if they engage in fraudulent or dishonest activities.

What is ERISA?

The Employee Retirement Income Security Act (ERISA) is a federal law that sets standards for the management of employee benefit plans. ERISA requires that those who manage employee benefit plans act in the best interest of the plan participants.

Do I need fiduciary liability insurance if I am not required by law to carry it?

Even if your business is not required to carry fiduciary liability insurance, it is still a good idea to do so. This type of insurance can help protect your business and your employees from financial losses resulting from claims of alleged breaches of fiduciary duty.

Can a fiduciary be held personally liable for losses resulting from breaches of fiduciary duty?

Yes, a fiduciary can be held personally liable for losses resulting from breaches of fiduciary duty. This means that if you are a fiduciary and you are found to have breached your duty, you may be required to pay damages out of your own pocket.