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.
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.
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:
The three major categories of fidelity bonds are business services bonds, employee dishonesty bonds, and ERISA bonds.
ERISA stands for Employment Retirement Income Security Act, which sets standards of conduct for managers of private sector employee benefit plans.
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.
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.