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Common Insurance Terms – What is a Fidelity Bond?

July 31, 2012

For the past few weeks, we’ve been talking here on the Avanti Reader about the most common types of bonds used in business insurance. We discussed surety bonds and guarantee bonds, and we’d like to close out our discussion of bonds with a little information on “fidelity bonds.”

A fidelity bond protects an employer against financial loss or other types of damage caused by dishonest or illegal acts committed by its employee.  Fidelity bonds offer an extra means to shield companies against expenses that are not covered under other policies.  They should be considered by any employer operating in an industry where there is a higher than usual likelihood for employee dishonesty.

Common types of fidelity bonds include:

Employee Dishonesty/Employee Theft Bonds – Protect your business against deceitful misuse of company resources and employee theft. “Employee Dishonesty” is a general term that covers not only cash theft but also protects against some forms of employee to employer misrepresentation and the theft of clients’ personal information. This is a very basic form of protection that sometimes requires no deductible.

Business Service Bond – Protect your clients from employee theft. Business Service Bonds are used in industries where employees have direct access to clients’ valuables (e.g. home care and home child care).

Commercial Crime Bond – Protect your business from more than just your employees. There are different types of Commercial Crime agreements that offer protection in situations such as burglary and robbery, forgery and alteration, computer fraud, fraudulent money orders, and counterfeit paper currency (e.g. a burglar breaks in and steals property out of a safe).  These types of bonds are much more comprehensive and, for the added protection, are likely to require a policyholder to pay a deductible when making a claim.

If your business operates in an industry where there is a potential for employee dishonesty or outside crime, review your policies with an eye toward identifying any gaps in coverage. Ask yourself: can you afford a loss occasioned by an employee’s dishonesty or a foreseeable crime? If the answer is no, it may very well be worth looking into fidelity bonds to secure extra protection.

This will conclude our survey of common bonds. If you’re looking for more information on fidelity bonds or surety in general, we’ll remind you that the Surety and Fidelity Association of America is a great resource for business owners. Thank you all for reading. To receive more information on insurance topics relevant to business owners, be sure to follow our Blog via RSS or connect with us on Twitter or Facebook to get automatic notification of our latest posts.

Disclaimer: The information provided in this post should not be construed as professional insurance or management advice. We seek only to offer a basic understanding of the risk management tools business owners are bound to encounter. Fidelity bonds can be vastly different in scope and operation, and decoding the complexities of these instruments is a job best left to your insurance broker or financial agent.

Sources:
Two for Tuesday: Big “I” Markets All-Stars, Public Perceptions Improving & Fidelity Bonding (e-newsletter). https://markets.independentagent.com. Web. July, 10 2012.

About Fidelity – The Surety & Fidelity Association of America. SFAA. 2012. Web. July 10, 2012.

 

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