Fidelity Bonds

What is a fidelity bond?

A fidelity bond is a specialized type of insurance that protects your business against losses caused by employee (or subcontractor) fraud, theft, forgery, or other misconduct. Any business owner with employees in a position of trust should consider fidelity bonding as part of a risk management strategy.

Why do I need a fidelity bond?

Fidelity bonds are useful to manage the risk to your business posed by possible theft, embezzlement or fraud by an employee. They also give your customers a solid reason to trust your business. In some cases, states require a fidelity bond in addition to a surety bond.

How do fidelity bonds differ from surety bonds?

A surety bond is a three-party legal agreement among the principal (you or your business), the obligee (usually a government entity), and the surety (the company providing the bond).

There are hundreds of kinds of surety bonds specific to different business types, and they are frequently required in order to obtain a state or municipal business license.

Fidelity bonds differ from surety bonds in the following important ways:

  1. Unlike a surety bond, a fidelity bond protects your business—not your customers—from fraudulent, dishonest or illegal behavior by your employees.
  2. Fidelity bonds are a simpler two-party agreement between your business and the company that issues the bond, rather than a three-party agreement.
  3. Fidelity bonds are not industry-specific, so there are only a few types to cover many different businesses.

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What are the main types of fidelity bonds?

The three major categories of fidelity bonds are business services bonds, employee dishonesty bonds, and ERISA bonds.

  • Business services bonds are needed if you have employees providing services on the premises of customers.
  • Employee dishonesty bonds protect your business from the consequences of employee misconduct.
  • ERISA bonds protect a company's retirement plan assets against misconduct by employees who have access to those assets and, unlike other fidelity bonds, may be mandated by government.

ERISA stands for Employment Retirement Income Security Act, which sets standards of conduct for managers of private sector employee benefit plans.

First-party vs. third-party fidelity bonds

Fidelity bonds can be either first-party bonds or third-party bonds. First-party fidelity bonds protect your business against misconduct by your employees. Most of the bonds described above are first-party fidelity bonds.

If you have subcontractors working for your company, third-party fidelity bonds protect your business against wrongful acts by independent contractors you've hired.

Sometimes a third-party fidelity bond is a requirement of doing business. For example,  companies in finance or banking typically require their subcontractors to purchase fidelity bond coverage to protect them against theft losses.

Have questions about fidelity bonds? Call NNA Surety Bonds at 855-215-2160.

How much does a fidelity bond cost?

Fidelity bonds can be relatively inexpensive, costing as little as 1% to 3% of the bond's full coverage amount. For example, the premium for a $10,000 bond would cost $100 to $300 each year.

Other factors that can affect cost include the type of coverage you need and the number of employees covered.

If you are ready to apply, or if you need more information about fidelity bond requirements, we are here to help. Call NNA Surety Bonds at 855-215-2160 or fill out the quote request form.

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