What Is The Difference Between Fiduciary and Fidelity?

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What is Fiduciary Insurance?

If your business is responsible for handling money for someone else, you are considered a fiduciary. Because you are handling money, there will always be a substantial risk associated with it. Whether it is mismanagement of funds, theft, or breach of contract, you will need Fiduciary Liability insurance. The most common reason businesses have Fiduciary Liability is due to having a retirement plan for their employees. Because you are providing this benefit and are managing the money, Fiduciary Liability will protect the business from liability claims associated with it. Keep in mind that Fiduciary is handling money, so it can also include other benefit plans such as health and welfare.

What is a Fidelity Bond?

You have probably heard of a Fidelity Bond insurance if you have employees, especially if your employees deal with customers regularly. As a business owner, it is difficult to think that your employees, who you probably treat like family, would steal from you. Unfortunately, this is a reality that is more common than you might want to imagine. A Fidelity bond will protect your business by reimbursing you for losses due to employee theft or dishonest acts that result in loss of money. Sometimes the bond will also provide protection for the customer.

An example would be using a customer's credit card fraudulently or stealing something of value while in a customer’s home. While not pleasant to think of your employees being untrustworthy, having a Fidelity bond will help to give you a little peace of mind. Not to mention, will make your customers feel more at ease with letting you, or your employees, into their homes.

What is the Difference Between Fiduciary and Fidelity?

The easiest way to remember the difference between Fiduciary Liability insurance and a Fidelity bond is that Fiduciary will pay the losses associated with managing money, while a Fidelity bond will reimburse for employee's dishonest acts.

With insurance, a claim, or lawsuit, will be brought against your business, usually claiming theft or mismanagement of funds. Perhaps an employee will say you did not deposit the right amount in their account. So insurance will pay to defend you, and any settlement that is determined to be given to the employee. If you have an employee steal cash out of the register, a Fidelity bond will pay you back.

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What is Covered by Fiduciary Liability Insurance Versus a Fidelity Bond?

Both Fiduciary Liability and Fidelity bonds deal with money but in different ways.

Fiduciary

  • Mismanagement of money claims
  • Breach of Contract
  • Excludes theft (see ERISA bond)

Fidelity

  • Theft of money by your employees form your business - reimburses business
  • Theft of money by your employees from your customers - reimburses customer
  • There is also an ERISA Fidelity bond that covers theft of money from employee benefit plans

Business Insurance

Running a business is challenging enough without having to worry about lawsuits, employee injuries or property damage. Having the right insurance gives you the peace of mind to focus on what matters - running your business.

The coverage you need depends on the type of business you run. A restaurant owner needs to be covered against customers possibly getting food poisoning while an accountant needs to be covered against calculation errors. CoverWallet's intelligent assessment system will identify the insurance you need based on your specific business, get you a policy that fits your budget, and do it all in less time than you think.

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