Fidelity bonds

Fidelity bonds, which are a type of surety bond, provide coverage when an employee's dishonest act causes a financial loss.

They’re sometimes referred to as “employee dishonesty bonds” because you can apply them to specific at-risk employees based on their access to sensitive information. Any business or nonprofit with employees who handle sensitive financial or personal information could benefit from a fidelity bond.

Fidelity bonds are not usually required by law. However, your clients might request fidelity bonds to protect their assets from your employees.

This is especially true if you work as a self-employed independent contractor with a bank or other financial institution. This gives your clients peace of mind that their assets are protected, no matter what.

For example, an IT consulting firm or a financial planner might need a fidelity bond to fulfill a client contract. It’s typically the contractor’s responsibility to secure fidelity bond insurance. A nonprofit could benefit from a fidelity bond, if its employees or volunteers handle sensitive donor information.

Fidelity bonds provide financial coverage when your employees engage in dishonest acts that could otherwise bankrupt your small business.

Specifically, this bond protects your business against:

Fidelity bonds benefit a variety of industries that have employees who handle sensitive or confidential client information.

However, there are a few key professions that should consider fidelity bonds as part of their risk management and loss control program, including:

Because of their line of work, IT professionals have the ability to obtain and misuse confidential client information that could cause a financial loss for your small business.

For instance, an IT consultant at your company overbills a customer and steals the excess. Once the crime is revealed, your company’s fidelity bond provides reimbursement for the loss.

Financial advisors and planners often have direct access to clients' banking accounts, which can be risky.

For example, an advisor at a financial institution forges a client’s signature on a check and steals thousands of dollars. A fidelity bond would reimburse the client for the stolen money, up to the coverage amount.

Healthcare professionals work with patients during their most vulnerable times. If a patient is taken advantage of by an employee, a fidelity bond would protect your organization.

For example, if a home healthcare aide steals a laptop from a patient during their visit, a fidelity bond would compensate the client for this loss.

Cleaning professionals and janitorial services are given access to spaces with valuable information or goods. If an employee takes advantage of the client's trust and steals something, a fidelity bond would compensate your client.

For example, if an employee at a house cleaning company steals jewelry from a client's home during a cleaning, the company would be held liability. A type of fidelity bond called a janitorial bond or business services bond would reimburse the client for their loss.

Management consultants directly handle retirement and other pension plans, which has its risks.

For instance, a consultant who handles a company's 401(k) illegally transfers money from the plan to their personal bank account. An ERISA bond would reimburse the plan's beneficiaries for the loss.

While fidelity bond coverage is crucial for several types of small businesses, it does not provide all the protection you need.

For instance, your bond does not include coverage for:

Fidelity bonds and insurance policies both offer protection for your small business; however, there are key differences between them. For example, insurance policies provide more general protection for your business, while bonds tend to cover one specific project and are purchased to help secure bids and contracts.

The most significant difference between insurance policies and bonds is that bonds typically must be repaid, while insurance policies do not. So, if you need to use your bond policy due to an incident or accident on a project, that money will need to be repaid to the insurer.

First-party fidelity bonds cover your business from issues that arise from dishonest employees, such as embezzlement, fraud, or forgery.

Third-party fidelity bonds protect your clients from your employees, should they engage in theft, fraud, or forgery.

These policies are often recommended for companies, such as technology businesses, where employees have a great deal of access to sensitive information.

A typical insurance policy, such as general liability insurance, pays out a claim to your business when something goes wrong. Fidelity bonds work differently. If one of your employees steals from a client, the bonding company will instead reimburse the client directly.

Unlike insurance, you must then pay that amount back to the insurer or bonding company. A fidelity bond can be viewed more like a line of credit than a form of insurance.

Fidelity bonds are a type of commercial crime insurance, which is a general term for any coverage that protects businesses and their clients financially against crimes. Other forms of crime insurance include:

• Commercial property insurance, a crime insurance policy that reimburses businesses for stolen and vandalized property. It also protects against fires and other types of property damage.

• Cyber insurance, a policy that protects your business financially after a ransomware attack or other cybercrime. It also helps pay for accidental data breaches caused by mistakes and oversights.

Employee dishonesty coverage is another term for a fidelity bond. However, it can also refer to an endorsement for commercial property insurance that protects your own business from employee theft. Small businesses can often add this coverage to a business owner's policy (BOP) as well.

Chat with a licensed insurance agent to find out which insurance coverage best fits your business.

Complete Insureon's easy online application today to compare business insurance quotes from top-rated U.S. insurance companies. A licensed insurance agent will help you add other types of coverage, such as a fidelity bond.

Once you find the right policy or bond for your small business, you can begin coverage in less than 24 hours.

If you want to learn more about bonds, you can find additional answers in our frequently asked questions about fidelity bonds.

If there are any additional questions you have about coverage or other types of business insurance or bonds, you can also contact an Insureon agent.