Understanding Crime Insurance: A Practical Guide

Crime insurance is designed to address losses caused by intentional dishonest acts rather than accidents or operational failures. These losses are often financial in nature, can be difficult to detect, and are frequently excluded from other types of insurance policies.

This guide explains what crime insurance covers, how it works, and why internal fraud and external theft remain persistent risks for businesses of all sizes.

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What Is Crime Insurance?

Crime insurance is a commercial insurance policy that provides coverage for direct financial loss resulting from criminal acts such as theft, fraud, forgery, or employee dishonesty.

Coverage focuses on loss of money, securities, or property, not liability to third parties.

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What Problem Does Crime Insurance Solve?

Crime insurance addresses the risk of intentional financial loss, including:

• Employee theft or embezzlement
• Forged checks or fraudulent wire transfers
• Social engineering and impersonation fraud
• Theft of money or securities
• Computer-enabled financial fraud (depending on policy)

Without crime insurance, these losses are often uninsured and absorbed directly by the business.

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Who Typically Needs Crime Insurance?

Crime insurance is relevant for:

• Businesses handling cash or financial transactions
• Companies with employees accessing funds or payment systems
• Organizations issuing checks or wire transfers
• Firms vulnerable to social engineering or phishing attacks
• Nonprofits and financial institutions

Both internal and external threats can result in substantial losses.

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How Does Crime Insurance Work?

At a high level, crime insurance works as follows:

1. A business purchases a crime insurance policy with defined coverages and limits.
2. A covered criminal act occurs.
3. The loss is discovered and documented.
4. The business reports the loss to the insurer.
5. The insurer reimburses covered losses, subject to policy terms.

Discovery timing and documentation are critical to claim eligibility.

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Common Crime Insurance Coverages

Most crime insurance policies include one or more of the following:

• Employee Dishonesty
  Covers theft or fraud committed by employees.

• Forgery or Alteration
  Covers losses from forged checks or altered financial instruments.

• Funds Transfer Fraud
  Covers unauthorized electronic transfer of funds.

• Computer Fraud
  Covers losses caused by direct computer manipulation.

• Money and Securities
  Covers theft or disappearance of cash or securities.

Coverage may be modular, with separate limits for each insuring agreement.

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Social Engineering and Fraud Scams

Many modern crime losses involve:

• Impersonation of executives or vendors
• Fraudulent payment instructions
• Email or phone-based deception

Social engineering coverage is often:

• Limited
• Sub-limited
• Optional via endorsement

Understanding whether these losses are covered is critical.

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What Crime Insurance Typically Does Not Cover

Common exclusions and limitations include:

• Indirect or consequential losses
• Accounting errors without criminal intent
• Losses discovered outside the policy period
• Voluntary parting of funds (unless endorsed)
• Cyber extortion (covered under cyber insurance)
• Legal liability to third parties

Crime insurance focuses on direct loss, not liability or reputational harm.

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What Affects the Cost of Crime Insurance?

Premiums are influenced by:

• Size and nature of financial transactions
• Internal controls and segregation of duties
• Claims history
• Industry risk profile
• Coverage limits and deductibles

Strong internal controls can reduce both risk and cost.

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Internal Controls and Risk Management

Insurers often evaluate:

• Dual authorization for payments
• Segregation of financial duties
• Employee background checks
• Audit procedures
• Cybersecurity and authentication controls

Weak controls increase exposure and may limit coverage.

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Crime Insurance vs Cyber Insurance

While related, these cover different risks:

• Crime Insurance
  Covers direct financial loss due to theft or fraud.

• Cyber Insurance
  Covers response costs, liability, and business interruption from cyber incidents.

Many financial fraud losses fall into coverage gray areas.

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Smart Questions to Ask an Agent or Broker

When evaluating crime insurance, consider asking:

• Are employee theft and social engineering covered?
• What losses are considered “direct” under the policy?
• Are funds transfer fraud and wire fraud included?
• What documentation is required to prove a loss?
• How do internal controls affect coverage?

These questions help prevent uncovered fraud losses.

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When Crime Insurance Makes Sense — and When It Might Not

Crime insurance makes sense if:

• Employees handle money or financial systems
• The business issues checks or wires funds
• Fraud or theft could materially impact finances

It may be less critical if:

• Financial exposure is minimal
• No employees or payment authority exist

For most operating businesses, crime insurance is an important financial safeguard.

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Cheat Sheet

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Key Takeaway

Crime insurance protects businesses from direct financial loss caused by theft, fraud, and dishonest acts—risks that are often excluded from other policies. Understanding coverage triggers, exclusions, and control requirements is essential to ensuring losses from fraud do not become unrecoverable.