When you hire new employees, you normally have an interview process. Sometimes you might even run a background check on potential candidates. But does this mean your business is protected from theft or fraud? No. Many companies decide to purchase a Fidelity Bond for added coverage for their business.
What is a Fidelity Bond?
A Fidelity Bond is an insurance policy that protects companies against financial loss due to employee fraud and theft.
Fidelity Bonds are also called Employee Dishonesty Bonds or Business Service Bonds, though these are technically different types of Fidelity Bonds. The terms are often used interchangeably though, which can be confusing.
Depending on what type of Fidelity Bond you get, it will either cover:
- Your business from theft by your employees
- Your clients from theft by your employees
- Or both
Types of Fidelity Bonds
- Business Service Bonds: Business Service Bonds protect your clients from theft by your employees. If you own a business, this bond would protect your clients should an employee of yours steal something while on a client's property. Usually these bonds are used in house cleaning businesses, maintenance businesses, pet sitting businesses, landscaping businesses, etc.
- Employee Dishonesty Bond: Employee Dishonesty Bonds protect you/your business from theft by your employees. The coverage protects against employee theft, fraud, and embezzlement. Employee Dishonesty Bonds are also called Commercial Crime Fidelity Bonds.
- ERISA Bonds: An ERISA Bond protects participants and beneficiaries from dishonest acts of a fiduciary who handles employee benefit or pension plans, including 401(k)s. This bond is the only Fidelity Bond required by law.
How Much Does a Fidelity Bond Cost?
Fidelity Bonds are quite inexpensive considering they cover so much. For example, a business who wants $100,000 in coverage can secure a Fidelity Bond for around $300-$400 a year. Many policies cover up to $500,000 in losses without significant premium increases. There are more extensive policies that can be higher in premium, depending on the coverage clauses involved.
Who is Covered by a Fidelity Bond?
Fidelity Bonds are normally considered to be ‘blanket bonds’ which means they cover all of the employees in a given business. However, depending on the type of policy, they might only cover certain employees. This is particularly true for Commercial Crime Fidelity Bonds/Employee Dishonesty Bonds.
The specifics of coverage are detailed in each policy, but generally, a blanket Fidelity Bond covers the following people:
- Current and former employees
- Seasonal/temp employees
Who Needs a Fidelity Bond?
All businesses should consider purchasing a Fidelity Bond for added protection, but the following companies are particularly at risk/might even be required by law to secure a Fidelity Bond:
- Cash carriers
- Messenger/courier services
- In-home service provides (nursing care, pet sitting, house cleaning, etc) - Janitorial Bonds
In short, a Fidelity Bond should be considered when you wish to protect your business from theft by your employees, or when you wish to protect your customers from theft by your employees.