What is a Fidelity Bond? [Is it the same as Employee Dishonesty and Commercial Crime Coverage?]
As the owner of a business, you want to do everything within your power to ensure you staff your team with ethically upstanding employees. Unfortunately, even with extensive background checks ran on potential candidates, your business is vulnerable to theft and fraud by an employee. For this reason, business owners are recommended to get a Fidelity Bond to protect themselves and their business from loss due to an employee’s dishonest actions.
A Fidelity Bond serves as protection from losses to either your clients or you and your business if an employee steals or performs fraud.
There are 3 main types of Fidelity Bonds to consider when shopping for a policy. The type of policy you should choose depends on the coverage you want for your business.
Are you interested in recouping your loss if your employee steals from your business?
Or, are you looking to offer your customers peace of mind by having coverage to protect their belongings from theft by your employee?
Maybe you want coverage that implements both types of coverage.
Our clients share their experience with getting their bonds below:
We’ve detailed the different types of available Fidelity Bonds below.
Types of Fidelity Bonds:
Business Service Bond / Janitorial Bond
This type of bond protects your clients if your employee steals from them. Businesses with employees working at the client’s property, such as a cleaning or landscaping company, generally purchase this policy.
Employee Dishonesty Bond / Commercial Crime Policy
If an employee steals or embezzles from you or your business, you’ll be thankful to have this commercial crime coverage. Please note, most crime policies have a conviction clause, meaning there isn’t a payout on a claim if you don’t prosecute your employee.
Unlike the 2 Fidelity Bond types above, an ERISA Fidelity Bond isn’t optional. Plan administrators of employee benefit, pension and 401k plans must meet the bond requirement of the U.S. Department of Labor. When viewing quotes, select a minimum bond amount of $10,000 or 10% of the total value of the plan assets handled in the previous year; whichever is more.
The ERISA Bond protects the participants and beneficiaries of employee benefit, pension and 401k plans from financial loss if the plan administrator mishandles the funds. The plan administrator is responsible for repaying the surety back in full when the surety pays out on a valid claim.
The plan administer may choose to purchase Fiduciary Insurance to have coverage for themselves. Fiduciary Insurance is advised optional coverage, but not a requirement.
Who does the policy cover?
Typically, a Fidelity Bond includes coverage for all employees within a business. However, some policies only cover specific employees, such as the Employee Dishonesty Bond / Commercial Crime Fidelity Bond.
When determining the right coverage for your business, be sure to read all the details for each type of policy.
Individuals receiving coverage from the bond typically include:
- Employees (Current & Former)
- Seasonal (temporary) Employees
Fidelity Bond vs Surety Bond
Although not a true surety product, Fidelity Bonds are often categorized as a Surety Bond. They both provide insurance coverage, however they operate differently. Fidelity Bonds closer resemble traditional insurance policies, whereas Surety Bonds are more of a mix of insurance and a line of credit.
Surety Bonds are a 3-party contract between the principal (you), surety company and obligee (entity requiring you to have a bond). Whereas, Fidelity Bonds are typically an optional 2-party contract between the principal and the insurer.
When a claim is made on a Surety Bond, the surety investigates the claim to determine if it’s valid. The surety will pay the claimant (usually a customer of the principal) up to the full bond amount in the event of a valid claim. The principal is responsible for repaying the surety back in full. In contrast, Fidelity Bond claims are made by the principal to collect when their employee causes loss due to dishonest actions.
Learn more about Surety Bonds and the types of businesses that need them.
What happens if a claim is made?
When deciding on the type of Fidelity coverage you want for your business, it’s important to look over the details of the policy. Just as any other insurance policy, you’ll have exclusions and limitations on your coverage.
Many policies include a conviction clause, meaning a claim will not be processed unless the employee is convicted of a crime with the police. The surety company holding your bond will conduct an investigation on the claim to determine eligibility for a payout on the policy.
How much does a Fidelity Bond cost? [What is the policy premium?]
Taking into consideration the amount of coverage a Fidelity Bond provides, they are relatively inexpensive. Ultimately, Fidelity Bond cost depends on the amount of coverage you want. However, our Fidelity Bonds start as low as $100 and are renewed annually.
Where to get a Fidelity Bond
Our partnerships with industry leading surety companies allows us to offer competitive prices when quoting your bond. However, as important as securing your Fidelity Bond at a reasonable cost is, you also want to be sure you get the fidelity plan that meets your business coverage needs.
Additional Surety Bond Resources
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