Fidelity Bonds are a very common insurance product for businesses. Designed to insure against fraudulent acts committed by employees, Fidelity Bonds not only protect a business against certain employee activities but also protect customers who may be on the receiving end of those fraudulent acts.
Fidelity Bonds are one of the oldest forms of insurance. They are also a commonly required purchase for certain businesses that desire to open up shop in some states. Many state legislatures have made it impossible to get a business license within that state unless a Fidelity Bond is purchased before submitting an application.
Not to be confused with Errors and Omissions Insurance, Fidelity Bonds specifically targets deceitful acts, not mistakes or oversights. The distinction can sometimes be subtle, but can make all the difference when a claim is filed.
Read on to understand if this type of insurance is right for your business.
At a basic level, Fidelity Bonds are insurance products centered around fraud. All Fidelity Bonds exist to protect you and your customers. Available in different amounts, Fidelity Bonds are designed for two reasons. First, they will be used to reimburse your customers in case one of your employees, or someone you hire out as an independent contractor, conducts themselves deceitfully. Secondly, you can file a claim and seek reimbursement should your business suffer monetary or other asset losses as a result of employee misdeeds.
Monetary theft is the reason why companies purchase Fidelity Bonds and the primary reason they exist. While these bonds carry a dollar value (e.g., some bonds may be worth $500,000), they can cover the value of all assets. While they will insure against theft such as embezzlement, they will also insure against fraudulent acts that lead to the loss of valuable, insured property.
A Fidelity Bond is not put in place as an investment tool for your business. Although the name of this insurance product uses the word "bond," it cannot generate interest, nor can it be traded for its value. It is an insurance product, commonly designed on a "claims made" basis. Depending on the amount of insurance purchased, successful claims will cover the full cost of the losses, up to the limit of the purchased insurance.
Getting into details...
Coverage for when losses occur due to employee theft from the company. Example: If an employee embezzles money, a Fidelity Bond will cover the amount lost, up to the amount of coverage purchased.
Coverage for liability claims when employees steal from others. Example: If an employee steals money or valuables that they would otherwise have had no access to, a Fidelity Bond can reimburse the client.
Coverage for instances where employees steal the identity of others. Example: Whether the identity was stolen is from another employee or a customer or client, a Fidelity Bond can cover the losses. This occurs when the employee would not have had access to the private information outside of the job.
Covers businesses that suffer a loss when employees steal valuable assets from the company.__ Example__: If an employee is stealing products from the business, or charging themselves less money for products, your business can receive compensation for this loss.
This insurance may come in handy if:
The Bond will only cover claims up to the amount written into the policy. This means a Fidelity Bond of $500,000 will only cover that amount. If you must pay an amount beyond this, you will be liable for the amount not covered by the bond. Some bonds are also limited to claims made during the time you hold the policy. Others may allow for claims that relate to theft or fraud that happened at an earlier date.
Fidelity Bonds can be purchased in various amounts, depending on your need. Coverage costs are typically a small percentage of (anywhere from .5% to 2%) of your total coverage amount. For example, a $500,000 bond at .5% would cost $5,000 to purchase.
A Fidelity bond is not insurance that covers employee dishonesty or any theft that does not involve retirement plans managed by your firm. It will only apply to an ERISA governed plan and is required by law.
While there are some exceptions to the rule, any qualified plan will be required to have a Fidelity bond. This includes 401(k), 402(b), ESOP’s, and profit-sharing plan. If you are not sure, consult with a CoverWallet advisor and they can help you determine if you need one.
The obligee on the Fidelity bond is your business as it is protecting your business from fraudulent acts by specified individuals.
Business Interruption Insurance covers you for lost income if your company has to vacate its location due to damage caused by a disaster, such as a fire. This policy also covers operating expenses, such as electricity, that continue to bill even though your business activities are on pause.
This insurance protects a broad range of equipment against breakdowns caused by motor burnout, power surges, boiler malfunction, and operator error. Equipment Breakdown covers the cost to replace or repair the damaged equipment, as well as other expenses incurred due to the damaged equipment.
Small businesses in the auto trade industry need Business Garage Insurance to protect them from a variety of risks, including injuries, mistakes or property damage.
This insurance offers protection to employees who are unable to work for a period of time due to a disability.
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