Crime Insurance is a big part of the CAIB 2 curriculum. Within Crime Insurance, by far the most important topic is the 3D Policy.
While the 3D Policy encompasses many coverages, I will be focusing on the 1st D: dishonesty.
Employee dishonesty is defined as a fraudulent or dishonest act by an employee who intended to cause loss to the insured or to obtain financial gain for themselves.
The key here is that the act needs to be fraudulent or dishonest. This excludes, for example, losses caused by accidents (such as an employee dropping a box of fragile goods) or financial gain by honest means (such as doing their job to earn a salary or commission).
The Policy Coverages
Most crime policies exclude employee dishonesty. But thankfully, there’s another option: a comprehensive dishonesty, disappearance, and destruction policy (often referred to as a 3D policy).
Under the dishonesty portion of the 3D policy, there are generally two coverage options:
- Form A – This option has one overall limit for all employees, regardless of how many employees are involved in the loss. That means you won’t need to find the culprit before the claim is paid out.
- Form B – This option assigns a limit to each employee. This is good because you won’t have to insure all employees (after all, some are more likely to cause a loss than others). The limits can also stack if more than one employee is involved in defrauding your business. If each employee has a $5,000 limit of insurance but there are five employees involved implicated, your business will have a $25,000 limit.
Clients might be wondering which one they should go with. The decision to go with either Form A or Form B will depend on your client’s particular situation. If most employees are expected to act alone, Form A would be your best bet. But if you do get Form B, it is generally recommended that you go with a big limit, one that is equal to the maximum amount of damage an employee can do.
I hope this helps anyone visiting this site. If you like what you see here and think I can help you with getting licensed or with your CAIB 2 exam, check out our online courses.