Archived Insight | January 3, 2020

Fidelity Bond Insurance Protects You From Theft and Fraud

Nobody wants to believe that their organization harbors someone willing to commit theft or fraud, however you don’t buy insurance for what you hope happens, but to protect against your worst fears. And an employee defrauding or performing other dishonest actions against either your organization (or your clients) should send a shiver down your spine, as it could leave you on the hook for millions—unless you have the right type of insurance.

Confident senior businessman using laptop

Fidelity bond insurance definition

Although the term “fidelity bond” sounds like an investment term, it actually describes a specialized type of insurance that covers dishonest and fraudulent acts committed by an employee (or a member of an organization). Common acts covered include theft or fraud committed by an individual, with the victim being either the organization or its clients.

Again, despite the word “bond” in the name, fidelity bonds are a type of specialized insurance and have no relation to the type of bonds traded on the market.

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The different types of fidelity bond coverage

Like many other types of insurance, fidelity bonds come in different varieties in order to give you a choice of what’s covered and to what limit. Broadly speaking, most of these fidelity bonds fall into three categories:

  • Employee dishonesty bonds:This type of fidelity bond coverage protects the company from embezzlement, theft or other dishonest acts performed by employees. If you’re worried about a disgruntled CPA on your payroll deciding to give themselves an unauthorized bonus, you may want to look at these types of fidelity bonds.

  • Business services bonds:These fidelity bonds typically cover any damage, theft or other acts of employee malfeasance at a client’s house or place of business. If you run an extermination company and you’re concerned your employees are holding wild raves when fumigating a customer’s house, this is the type of coverage for you.

  • ERISA bonds:Named after the Employee Retirement Income Security Act (ERISA), these fidelity bonds protect participants in a pension plan or 401(k) from dishonest acts by plan managers that could rob them of their nest eggs. ERISA requires trustees to have at least 10% of the total plan’s assets protected by these fidelity bonds. 

 

This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.