When assuming a fiduciary or trustee role for a benefit plan, it’s common to think that a fiduciary bond or a fidelity bond, required by law, will protect you against lawsuits. These bonds protect other entities, including ERISA-governed plans themselves, such as health, pension, or retirement plans, but still, leave the fiduciary or trustee open to liability lawsuits due to the actions you take as a fiduciary — or the lack of action.
The risk associated with fiduciary roles is elevated by the fact that a lawsuit can be filed against a fiduciary or trustee without full proof of any wrongdoing, leading to a potentially expensive court battle which can put your personal assets at risk. Win or lose, your house, savings, or even your future earnings may be at stake without proper coverage.
Unlike fidelity bonds and similar surety instruments, a Fiduciary Liability insurance policy isn’t required by law. However, the liability exposure stemming from fiduciary responsibilities can be massive, creating a risk that can put a lifetime of assets in jeopardy.
Another common thought is that a Business Liability Insurance policy, an Errors and Omissions insurance policy, Directors and Officers coverage, or even an Employee Benefits Liability policy will provide protection against any liability related lawsuits. Each type of policy has limits to its coverage. A Fiduciary Liability Insurance policy provides specific coverage for liability due to fiduciary actions (or inactions) and extends that coverage to personal liability due to a breach of fiduciary duty.
If you operate in a fiduciary or trustee capacity, a Fiduciary Liability policy is the only choice for effective personal liability coverage. Your coverage limits can vary based on the amount you choose. A detailed discussion with your trusted agent can help you to understand the risks and choose an appropriate level of coverage. In an industry study, average coverage limits were found to be over $4 million with a median coverage limit of $5 million. A smaller group purchased coverage for up to $10 million.
An important consideration is whether your policy limit is structured as an aggregate limit — because many are — and this can reduce the amount of coverage available for subsequent claims if you have a prior claim during the coverage term. A higher coverage limit provides better protection for multiple claims.
Once you’ve established an appropriate coverage limit, it’s important to review your coverage regularly with your trusted agent to ensure that your coverage keeps pace with plan growth and associated personal liability exposure.
Rates for Fiduciary Liability insurance vary, with one of the largest variables being the amount of coverage you choose. Fortunately, rates have come down in recent years, often making a Fiduciary Liability insurance policy more affordable than ever. Lawsuits can come at any time but getting a quote and binding coverage is a fast process to be sure you’re covered. Just reach out to your trusted agent to get started.
When it comes to business insurance, this is the baseline and first type of policy you should purchase. It gives business owners peace of mind in knowing that in the case of an accident - such as someone slipping and falling on their property - their business is protected.
A Fiduciary Bond, commonly called an ERISA bond, is a specialized type of Fidelity Bond that specifically provides coverage for 401k plans, pension plans, or other employee benefit plans sponsored by the business.
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