Keep Your Finances Safe
Fiduciary insurance revolves around protecting insureds from lawsuit expenses caused by a breach of fiduciary duty. However, to understand such breaches, let’s first discuss who a fiduciary is and what their responsibilities are.
In this article
Understanding Fiduciary Responsibility
A fiduciary can be an organization or a person who acts on behalf of another party. Fiduciaries are legally and ethically bounded to act in the party’s best interest. Hence, a fiduciary is anyone trusted to act in the best interest of concerned beneficiaries.
Fiduciaries can be money managers, bankers, accountants, insurance agents, financial advisors, board members, corporate officers, etc. Their prime responsibility is to serve the client’s best interest. Fiduciaries need to act in good faith and preserve the trust of clients.
For instance, if you’re an investment advisor, you are legally liable to suggest good investment opportunities to your clients. If you work to make profits for yourself while neglecting the client’s interests, you may face lawsuits on the grounds of breach of fiduciary responsibility.
What does Fiduciary Insurance Do?
- People or entities exercising authority or discretionary control on employee plan management
- Those responsible for the plan’s administration or exercise discretionary authority for the same.
- Entities providing investment advice to a plan
Do You Need Fiduciary Insurance?
When the lawsuit claims arises, make fiduciary insurance your savior!
Coverages of Fiduciary Insurance
Fiduciary insurance compensates you from suits arising from the following:
- Careless selection and supervision of service providers
- Improper investment decisions
- Unauthorized changes in employee benefits plans
- Prohibitive transactions
- Wrongfully denied benefits to employees
- Erroneous administration of plans
- Conflict of interest (for e.g. self-profiting)
- Improper consultation or advice
- Mismanaged investments, such as no portfolio diversity
A fiduciary policy may provide comprehensive coverage to the company, directors, officers, employees, administration committees, employee benefits companies, etc. The fiduciaries are covered for fines, penalties, and punitive damages following lawsuits.
Exclusions of Fiduciary Liability Insurance
- Any dishonest acts
- Criminal or illegal actions
- Intentional wrongdoing
How much does Fiduciary Insurance Cost?
Generally, an employer purchases fiduciary insurance to cover the fiduciaries working for them. Even so, it’s worth noting that fiduciaries should always prioritize beneficiaries’ interests over the company’s interests.
The cost of fiduciary insurance depends on the following factors:
Business sizeLarge companies have more significant risks. Furthermore, greater risks mean greater premiums.
Nature of businessInsurers classify risk class based on the industry. Some industries are more prone to risks than others. Therefore, if your business’s nature is categorized as having a higher risk exposure, you’ll be charged a higher premium.
Service providerFor instance, suppose you hire a financial advisor to take care of your financial plans. While selling fiduciary insurance, the insurance provider considers the claim records of that financial advisor. The higher the number of claims, the greater the premium and vice-versa.
Plan assetsA high-value employee benefits plan will increase your cost of insurance. On the other hand, a low-value plan will lower the cost of insurance.
Policy limitsPolicy limits reflect the level of coverage. If you want to purchase insurance with higher policy limits, your costs will also increase. Get a sneak peek of how much a fiduciary insurance policy might cost you. Contact us for a quote.
Other Policies with Fiduciary Liability Coverage
How is a fidelity different from the fiduciary?
A fidelity bond reimburses you for dishonest acts committed by your employees, such as theft. On the other hand, a fiduciary insurance will indemnify you for lawsuits surfacing from improper management of benefits.
What is a VA fiduciary program?
A VA fiduciary program safeguards veterans and beneficiaries who incapable of managing their finances due to illness, injury, or age.
How do you prove a breach of fiduciary duty?
- There exists a fiduciary relationship
- There was a breach in the relationship
- The breach caused financial loss
Not sure where to start? Why not get a quote!