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What Is Employee Benefits Liability Coverage?

A man in an office explains employee benefits liability coverage

If you have been looking for ways to safeguard your business against damaging lawsuits, you may have wondered, “What is employee benefits liability insurance?” Employee benefits liability (EBL) coverage protects your company from mistakes made while distributing benefits for your employees. Although your company may already have other types of liability insurance, EBL insurance encompasses gaps in other coverage plans to ensure that your business is legally protected from administrative errors related to your employees’ benefits packages

We’re here to guide you through exactly what benefits liability insurance covers, what differentiates it from other types of business insurance plans, and whether or not you should consider getting EBL coverage for your business.

What Is Employee Benefits Liability Insurance?

First, let’s make sure that we have a solid understanding of what is employee benefits liability insurance. This coverage is designed to secure your business against legal claims made due to mistakes made while distributing benefits to your staff. The covered benefits vary from plan to plan, but generally cover medical insurance such as healthcare, dental, and life insurance; financial benefits such as pensions, stocks, and profit shares; and other benefits such as workers compensation and disability.

If your company were to be sued in relation to an error or omission related to employee benefits, then your EBL insurance would cover the damages your business would otherwise be legally obliged to pay. 

Employee benefits liability can come in handy in a number of different legal situations related to employee benefits mistakes, including: 

  • Forgetting to enroll employees for their benefits plans. For instance, you may have forgotten to give dental benefits to a new hire, or to renew the health care plan for a retained employee.
  • Clerical errors related to employee benefits that lead to financial consequences for employees. This might occur if your payroll software or internal accountant made a mistake that was not noticed until too late.
  • Providing faulty information about an employee’s benefits. As an example, EBL insurance would kick in if your HR staff incorrectly told an employee that their children were covered by the employee’s healthcare benefits. 

What Is Not Covered by Employee Benefits Liability Insurance?

Now that we understand what is employee benefits liability insurance, we need to understand what EBL insurance is not. As with any insurance plan, there are limits to what this insurance will cover. 

EBL typically has an aggregate limit, which refers to the maximum amount the insurance plan will cover related to all administrative benefits errors. There is also typically an employee limit, or a cap on how much the insurance plan will pay out in damages for one employee (including that employee’s family and beneficiaries). Some EBL plans may in addition have deductibles that limit how much your business will have to cover in out-of-pocket expenses.

It’s also important to understand how employee benefits liability insurance differs in coverage from other business-related insurance plans. Fiduciary liability insurance is commonly confused with EBL insurance, even though the two protect your business in different ways. Fiduciary liability insurance is designed to cover breaches in fiduciary duty related to benefits, such as making bad investment choices or lacking the necessary funds to provide the promised benefits. EBL insurance, on the other hand, is concerned with mistakes or omissions related to employee benefits. 

Employee benefits liability insurance also does not offer the same coverage as commercial general liability insurance. Situations that would be covered by a commercial general liability policy include bodily injuries, damages to property, or personal and advertising injuries. 

Do I Need Employee Benefits Liability Coverage?

Hopefully by now you know the answer to the question: “What is employee benefits liability insurance?” But now you might have another looming question: “Do I need benefits liability coverage for my business?” 

It is difficult to provide a “one size fits all” answer to this question. Whether or not your business needs employee benefits liability coverage will depend on many factors, such as the insurance coverage you already have and the benefits packages offered to your staff. 

In general though, when it comes to acquiring insurance policies for your business, it’s better to be safe than sorry. Even if you don’t think you need employee benefits liability coverage now, you might think otherwise when your payroll software glitches on dental benefits, or when you forget to explain a crucial aspect of your healthcare coverage to one of your employees.

Canal HR Can Help You Decide How to Best Protect Your Business

Head swimming with whether or not your business needs an employee benefits liability policy? Let Canal HR lend a hand. 
We know that you already have more than enough to worry about with your business’s operations. As a licensed PEO, we can help you make informed decisions about benefits liability coverage, as well as any other payroll choices you might have to make. We will also handle all of the payroll operations for you. Contact us today to learn more about what Canal HR can do to make your business life a little easier.