Fidelity Bond

A fidelity bond is one of the oldest uses of bond in the world. A fidelity bond is simply an for one party (the ) to provide assurance to another party that the person being guaranteed will live up to the terms of the agreement. Fidelity bonds are usually personal in nature.

A fidelity bond is a type of surety bond (similar to insurance), which provides protection for the Obligee for any losses that are incurred due to an employee (or specified third party) committing a fraudulent act. These bonds are also referred to as dishonest employee act bonds. Fidelity bonding is a specific type of business insurance that safeguards employers from potential employee dishonesty, theft, or embezzlement. It offers a no-cost insurance option that facilitates the hiring of individuals who may be considered at risk, thereby providing protection and reassurance to employers regarding the integrity of their new hires.

Protecting your business against employee theft with employee dishonesty insurance

Similar to insurance policies, a fidelity bond is really a type of surety bond. These protect employers from the dishonest acts of employees, like insurance would. Third party fidelity bonds are also important as they protect businesses from losses caused by non-employees, such as independent contractors or consultants. The losses that are usually protected against are losses from company securities, funds, as well as other property losses from an employee through theft or fraud. Certain employees have access to funds and employers want to protect against losses from those employees. The simplest example is a bank teller. Given that they have access to plenty of , an employer is unable to fully monitor the actions of the employee. So, the employer will get a fidelity bond to protect against this potential loss.

Types of Fidelity Bonds

Fidelity bonds are categorized into various types, each designed to provide specific coverage for businesses. The most common types of fidelity bonds include:

1. Employee Dishonesty Bond: This type of bond protects businesses from financial losses caused by employee dishonesty, such as theft, embezzlement, and forgery. It ensures that employers are safeguarded against the fraudulent actions of their employees.
2. Business Services Bond: This bond provides coverage for businesses that offer services to clients, such as janitorial or security services. It protects against losses caused by employee dishonesty while on the client’s premises, ensuring that the business maintains its reputation and client trust.
3. ERISA Bond: Required by the Employee Retirement Income Security Act (ERISA), this bond protects retirement-plan beneficiaries from theft by trustees or other fiduciaries. It ensures that the funds meant for retirement are secure from fraudulent activities.
4. Financial Institution Bond: This bond provides coverage for financial institutions, such as banks and credit unions, against losses caused by employee dishonesty, including theft, embezzlement, and forgery. It is crucial for maintaining the financial stability and trustworthiness of these institutions.
5. Commercial Crime Bond: This bond offers coverage for businesses against losses caused by commercial crime, including employee dishonesty, theft, and forgery. It provides a comprehensive safety net for businesses facing various criminal threats.

How Fidelity Bonds Work

Fidelity bonds are insurance policies that provide employer protection against losses caused by employee dishonesty. Here’s how they work:

1. Policy Purchase: A business purchases a fidelity bond policy from an insurance company. This initial step involves selecting the appropriate type of bond based on the business’s specific needs.
2. Policy Terms: The policy outlines the terms and conditions of the coverage, including the types of losses covered, the policy limits, and the deductible. Understanding these terms is crucial for businesses to know what is protected.
3. Employee Dishonesty: If an employee commits a fraudulent or dishonest act, such as theft or embezzlement, the business files a claim with the insurance company. This step is essential for initiating the coverage benefits.
4. Claim Investigation: The insurance company investigates the claim to determine the extent of the loss and whether it is covered under the policy. This thorough investigation ensures that only legitimate claims are paid out.
5. Claim Payment: If the claim is approved, the insurance company pays the business for the loss, up to the policy limits. This payment helps the business recover from the financial impact of the dishonest act.

Benefits of Fidelity Bonds

Fidelity bonds provide several benefits to businesses, including:

1. Employer Protection: Fidelity bonds offer employer protection against losses caused by employee dishonesty, helping to mitigate the risk of financial loss and maintain business stability.
2. Financial Institution Protection: These bonds provide coverage for financial institutions against losses caused by employee dishonesty, protecting against financial loss and reputational damage.
3. Contract Bond: Fidelity bonds can serve as a contract bond, ensuring that a business is protected against losses caused by employee dishonesty while working on a contract, thus maintaining trust with clients.
4. Bail Bond: In some cases, fidelity bonds can be used as a bail bond, protecting a business against losses caused by employee dishonesty while on bail.
5. Bond Coverage: Fidelity bonds provide comprehensive bond coverage, protecting against losses caused by employee dishonesty, including theft, embezzlement, and forgery.
6. Bonding Services: These bonds offer bonding services that ensure a business is protected against losses caused by employee dishonesty, enhancing overall security.
7. Federal Bonding Program: Fidelity bonds can be utilized in conjunction with the Federal Bonding Program, which provides fidelity bonds to at-risk job seekers, including those with criminal records or other barriers to employment, promoting inclusive hiring practices.
8. Federal Taxes: Fidelity bonds help protect against losses caused by employee dishonesty, including the theft of federal taxes, ensuring compliance with federal tax laws and safeguarding financial integrity.
9. Fixed Income: These bonds can provide a fixed income stream for businesses, contributing to financial stability and predictability, which is crucial for long-term planning.
10. Employee Dishonesty Insurance: Fidelity bonds act as employee dishonesty insurance, protecting against losses caused by employee dishonesty, including theft, embezzlement, and forgery, thus securing the business’s assets.

Fidelity Bonding Services Guide