A fidelity bond is a specialized type of insurance that protects your business against monetary or physical losses caused by employee fraud, theft, forgery, or other misconduct. Certain forms of fidelity bonds also protect against monetary or physical losses as a result of misconduct by subcontractors. Any business owner with employees in a position of trust should consider fidelity bonding as part of a risk management strategy.
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.
Fidelity bonds are useful in managing the risk of possible theft, embezzlement, or fraud by an employee. Getting bonded may also instill trust in your customers. Some states require a fidelity bond in addition to a surety bond, so be sure to review your state's requirements or contact NNA Surety Bonds for assistance.
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 surety bonds specific to hundreds of 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:
The three major categories of fidelity bonds are business services bonds, employee dishonesty bonds, and ERISA bonds.
Other types of fidelity bonds include blanket bonds and schedule bonds.
Fidelity bonds can be either first-party bonds or third-party bonds. First-party fidelity bonds protect your business against employee misconduct. 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 committed by the independent contractors you've hired.
Sometimes a third-party fidelity bond is a requirement for doing business. For example, companies in finance or banking typically require their subcontractors to purchase fidelity bond coverage to protect them against theft losses.