The definition of fidelity is faithfulness to obligations, duties or observances. In business a fidelity bond is used to protect a business from certain types of damages that are caused by their employees. These bonds are designed to protect the business from issues that are not covered by other type of insurance or policies that they may have.
The most common reasons that a business would need to make a claim on a fidelity bond is when an employee damages the business through dishonest or negligent actions. The fidelity bond is an insurance policy for business to protect them from monetary damages.
Who can get a fidelity bond?
The fidelity bonds only protect a business for their paid employees. It does not protect self-employed individuals and independent contractors. The definition of a paid employee is any employee that has federal taxes withheld from their paycheck.
It is very common for businesses in the financial field to maintain fidelity bonds. Insurance companies and brokerages often deal with large sums of money. They need to have a way to recover any money that is lost because of dishonest employees. The fidelity bond provides the companies with the ability to do that.
What does it cover?
The biggest question that a business has is what the fidelity bond will cover. In the case of dishonest protection, the fidelity bond will protect the business against fraudulent activity that caused the business to lose money. Some of the reasons that a claim will be filed against the bond include:
- Employee theft
In the case of claims that are filed because of negligent actions, there are also several areas where the bond will offer protection. Employees that cause deliberate damage to the businesses property can create situations that could result in a claim. If the employee takes a hammer to the business’s equipment, that would be an example. Claims can also be filed if the employee does not do their job properly and because of the negligence, property is damaged. If an employee leaves the safe open and the money is stolen out of it, it could result in a claim.
There are some things that the fidelity bonds do not cover. Accidents by employees are not covered. If a business loses money because an employee does not do their job well, they cannot make a claim. Other exceptions can be written into the4 bond when it is purchased.
Types of fidelity bonds
Most fidelity bonds are purchased through companies that offer a variety of surety bonds and other bonds. There are some businesses that are able to get free fidelity bonds though local governments that want the businesses to hire certain groups of people. The bonds can entice businesses to hire people that are considered to be risky such as individuals convicted of a crime or individuals with certain types of handicaps. Fidelity bonds can range from a few thousand dollars to tens of thousands of dollars in coverage.
Where to get them
The fidelity bonds can be purchased from companies that specialize in these types of products. They will require the business to provide information about their reputation in the industry that they are in. They will also have to supply financial statements to the company that is offering the bond. There is no guarantee that a bond will be issued. If the company offering the bond thinks it is too risky they will either deny the coverage or they will charge more for the bond. If a company is going to get a fidelity bond, they can go through a pre-qualification process that can make it easier to get the bond later on.
Businesses need to rely on their employees. Most successful businesses will say that it is thanks to the hard work of their employees. In the event the employees do not do the things they are supposed to, the fidelity bond will provide the protection they need.