Certified Plan Sponsor Professional (CPSP) Practice Exam

Which of the following statements about Fiduciary Liability Insurance is correct?

1. Fiduciaries can purchase Fiduciary Liability Insurance for themselves if the plan sponsor does not otherwise have a Fiduciary Liability Insurance policy.

2. Fiduciary Liability Insurance is mandatory for all plan sponsors.

3. Only corporate entities can buy Fiduciary Liability Insurance; individuals cannot.

4. Fiduciary Liability Insurance can only cover past obligations.

The correct answer is: Fiduciaries can purchase Fiduciary Liability Insurance for themselves if the plan sponsor does not otherwise have a Fiduciary Liability Insurance policy.

Fiduciary Liability Insurance is a crucial tool for protecting individuals who serve as fiduciaries to an employee benefit plan. It provides coverage for claims arising from alleged breaches of fiduciary duty or mismanagement of plan assets. The statement that fiduciaries can purchase Fiduciary Liability Insurance for themselves if the plan sponsor does not provide such a policy is correct because it recognizes that individual fiduciaries have the ability to seek personal insurance coverage independent of the organization’s insurance policy. This is particularly important since the fiduciaries are personally liable for their decisions regarding the plan, and having their own insurance can protect their personal assets in the event of a claim. Understanding the context of this specific aspect of fiduciary responsibility underscores the importance for individuals in these roles to ensure they are adequately protected, especially in situations where the sponsor may not have an overarching policy in place.