Overview of Fidelity Bonds
Despite its name, a fidelity bond is a form of insurance and not a financial asset. It may seem strange to purchase insurance for your employees' intentional misdeeds, but high levels of trust can actually increase your risk exposures.
Employees with regular access to financial information, safes, cash registers, or valuables can easily commit fraud, especially if their employers don't consider the possibility of intentional fraud. Fidelity bonds can also protect your business from losses caused by a third-party contractor.
How Much Do Fidelity Bonds Cost?
Insurance carriers determine the rate for fidelity bonds based on the amount of coverage, the number of employees included in the policy, and your business's industry. However, rates can also vary depending on the type of fidelity bond that's being purchased.
The Three Main Types of Fidelity Bonds
Insurance carriers generally offer three main types of fidelity bonds:
- Crime & Employee dishonesty bonds - These bonds protect your business from any financial losses caused by your employees.
- Business service bonds - Businesses that regularly send employees to their clients' or customers' locations should purchase these bonds to cover any intentional theft or property damage.
- Employee Retirement Income Security Act (ERISA) bonds - Federal regulations require businesses with retirement plans to purchase ERISA fidelity bonds for employees who manage benefit funds. ERISA bonds must cover at least 10 percent of the funds handled by employees, but businesses should be sure to check their specific regulatory requirements when purchasing coverage.
Who Should Purchase Fidelity Bonds?
Although almost every workplace has risk exposures related to employee fraud, fidelity bonds are especially important for certain businesses:
- Many states require businesses to purchase fidelity bond coverage before issuing business licenses.
- Businesses with retirement and other employee benefit plans need to purchase fidelity bonds to comply with ERISA requirements.
- Workplaces that allow employees to work near cash registers, safes, and unsecured financial information should consider fidelity bonds, even if they monitor their workforce with cameras or digital IDs.
- Businesses that send employees to other workplaces or their customers' homes should have them covered under a fidelity bond. These employees frequently have extended and unmonitored access to valuables, making them a large risk exposure.
- Contractors will need the coverage provided by crime and employee dishonesty bonds to protect against employees stealing from the job site.
What Are Financial Institution Bonds?
Fidelity bonds designed to protect banks are generally referred to as financial institution bonds, or "Bankers Blanket Bond" insurance. This type of insurance protects a firm's balance sheet against fraud. Institutions that provide financial services to third parties needs to consider some sort of financial institution bond. This includes depository institutions, investment managers, and investment funds.
How Can Businesses Get Bonds?
Your business relies on its employees to conduct your operations and promote success. However, you also need to purchase coverage for all your risks, including employee fraud.
For help purchasing a bond, contact the independent insurance experts at World Insurance Associates. Our agents are familiar with many types of bonds, and they can help you find the right one for your business.