Crime Insurance – What Kinds and How Much?
There are several different types of crime insurance that business owners should consider. The types you need depend on what type of business you have. Here are the major types you may need to consider.
You need Employee Theft insurance if you have any employees. According to a report prepared annually by the Association of Certified Fraud Examiners, the typical organization loses 5 percent of its revenues to fraud each year. The median loss caused by an occupational fraud case in the ACFE study was $140,000 and more than 20 percent of those cases were losses of at least $1 million. The smallest organizations in the study suffered the largest median losses, because these organizations typically employ fewer anti-fraud controls than larger companies. Most employee theft losses occur over a period of months or even years before they are discovered.
How much Employee Theft Insurance should you purchase? Only you, the business owner or chief financial officer, can make this decision. One method is to use a formula developed by an insurance trade organization. The Employee Theft Limit Formula determines an organization’s “Employee Theft Exposure Index” based on 5 percent of Inventory plus 20 percent of Current Assets LESS Inventory plus 10 percent of Gross Sales or Income. This index is then used to enter a table to determine a minimum suggested amount of insurance.
Forgery or Alteration
You need Forgery or Alteration insurance if your business maintains a checking account. Forgery refers to an unauthorized person (not an employee) signing and cashing your checks for their personal benefit. Alteration refers to changing the amount payable on a check you have issued to a person. The recommended amount for Forgery and Alteration insurance is the same as you purchase for Employee Theft insurance.
Theft, Disappearance or Destruction of Money or Securities
If your business accepts cash, checks or credit cards for its products or services, you need insurance for Theft, Disappearance or Destruction of Money or Securities. Cash, checks and credit card receipts can be lost or stolen from your business location or while being transported to the bank. This insurance covers destruction by fire and weather-related catastrophes, because other insurance policies covering your personal property specifically don’t cover money or securities. You should purchase an amount that would cover the largest amount of cash, checks and credit card receipts that could ever possibly be on your premises at any one time.
Other Types of Crime Insurance
Here is a short list of other types of Crime Insurance that are available for specific needs of certain organizations. If you see one that might be needed by your business, ask your agent for more information.
- Computer and Funds Transfer Fraud
- Counterfeit Money and Fraudulent Money Orders
- Kidnap Ransom and Extortion
- Identity Fraud Expense
- Telephone Toll Fraud
This article was prepared and made available to your agent by the Independent Insurance Agents of Texas, which is solely responsible for its content. Please read your insurance policy. If there is any conflict between the information in this article and the actual terms and conditions of your policy, the terms and conditions of your policy will apply. The Independent Insurance Agents of Texas is a non-profit association of more than 1,500 insurance agencies in Texas, dedicated to helping its members succeed, in part by providing technical resources that explain insurance policies sold to their customers.
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