Employee benefits liability coverage, also known as EBL or E&O insurance, protects your business from the costs of claims related to employee benefits.

Employee benefit plans are a common way for businesses to incentivize their employees to take action that is in the company’s best interests. These programs may include retirement savings plans, health and wellness initiatives, stock option plans, or other financial incentives.

EBL coverage protects against third-party claims related to your employee benefits program. It also pays legal defense costs if you are sued or have to defend against claims that could lead to a lawsuit. Why do you need Employee Benefits liability coverage?

How Employee Benefits Liability Coverage Works

Employee benefits liability insurance includes two parts: The first is “claims made” coverage, which covers claims made against you during your policy term. If an employee files a claim during your policy’s period, their claim will be covered by your policy. The second type of coverage is called “claims reported” coverage, which covers claims you report after an expired policy. For example, if an employee filed a claim against you last year but did not report it until this year because they didn’t know they could file one, their claim would fall under this type of coverage and be covered by your policy’s limits even though it was filed after the date on which your last policy ended.

Types of Benefits Covered By Employee Benefits Liability Insurance

Employee Benefits Liability Insurance is a type of insurance that covers the employer against any losses and damages incurred due to providing employee benefits. Some of the benefits that this type of insurance covers include:

Health insurance

Health insurance is a vital part of employee benefits, as it protects employees and their families from the high cost of medical treatment or hospitalization. This coverage can help pay for medical expenses, including doctor visits, prescription drugs, physical therapy, and surgery.

Dental insurance

Dental insurance helps pay for oral healthcare services, including fillings, root canals, and crowns. Many plans also cover preventive care like teeth cleanings and fluoride treatments. Employers may choose to cover only major dental procedures or provide full-service coverage that includes preventive care and major dental procedures.

Disability insurance

Disability insurance provides income for employees who become disabled due to illness or injury. This coverage pays out if you’re unable to work because of your disability, allowing you to receive at least a portion of your regular salary while recovering from your ailment. This type of policy typically pays 60 percent or more of an employee’s salary during their disability period — up to a maximum amount specified in the policy contract — until they can return to work.

Life & Disability Insurance Claims

Employees might seek payment for lost wages if they could not work due to illness or injury sustained while working at your business. If they were injured on the job, life insurers might also be liable for hospital bills and death benefits if an employee dies due to their injury.

Maternity leave

Maternity leave is a benefit that must be paid to the employee during her pregnancy and after the birth of her child. An employer’s amount of maternity leave varies based on state law and company policy. Section B of an employee benefits liability insurance policy covers this type of leave, including partial wage replacement or complete wage replacement if the employer offers it.

Retirement plan benefits

Retirement plan benefits are typically provided as part of an employer’s 401(k) plan or other retirement savings vehicle offered by the company. Section C of an employee benefits liability insurance policy protects against claims brought by employees seeking to recover their contributions to the plan plus interest for any unpaid retirement plans provided by their employers.

Social Security Benefits

Social Security disability benefits are paid to individuals who become disabled and cannot work for medical reasons. The benefits are paid by the Social Security Administration (SSA) and are not included in the employee benefits liability insurance. However, it is essential to note that if you provide an employee with a disability policy that pays for long-term disability or short-term disability, you may need to purchase workers’ compensation insurance and this additional coverage.

Vacation Benefits

Vacations are not a legal requirement, but most employers offer them as part of their employee benefits package. Vacation time is often considered part of an employee’s overall compensation package. It can be included in the workers’ compensation policy or excluded from it depending on whether it is supplemental income. If you exclude vacation time from your workers’ compensation policy, you may want to purchase an employee benefits liability policy.

Workers’ compensation policy

Workers’ compensation is required by most states as part of employment law and is not considered an employer benefit for purposes of EBL coverage. However, some companies may offer supplemental workers’ compensation policies in addition to what is required by law, and an EBL policy could cover those if they meet the requirements of the policy.