What is a Fidelity Bond?
A fidelity bond is a kind of insurance that offers protection to a company or organization against losses brought about by its employees' fraudulent and dishonest activities. This type of insurance can ensure against financial or physical losses or damages.
Similar to Crime Insurance
Fidelity Bond policy protects organizations from their own loss caused by a crime event. In its most fundamental, Legislation Insurance protects organizations in loss of money, securities, together with other property. The main coverage granted and the main coverage involved in a crime loss originates from employee dishonesty and employee theft. Most crime policies, including the following coverages:
- Employee Dishonesty / Theft
- On-premises or in-transit robbery or burglary
- Money Orders and fake currency
- Computer fraud and capital transfer fraud
- Credit card policy
- Accident charges
- Employee Retirement Income Security Act bond coverage is frequently added to a crime policy issue to a zero retention to adhere to the Pension Benefits Standards Act PBSA bonding requirements.
Nonetheless, a different PBSA bond may also be bought to address this requirement. Crime policies might also be enlarged to include coverage for customer property losses from the care, control or custody of the Insured and deceptive impersonation coverage. Crime policies could be composed of Loss Sustained or on Discovery foundation forms. Discovery forms are generally preferred as they react to losses found by persons designated in the insurance coverage, no matter when the loss occurred.
Understanding Fidelity Bonds
Suppose an organization has employees who commit fraudulent or deceitful acts. In that case, the organization may face legal or monetary penalties aside from the individual employee or employees who committed those fraudulent activities. Subsequently, organizations are in danger of being presented to such penalties, particularly firms with many workers. Fidelity bonds are the types of insurance policies that offer coverage for such damages.
Fidelity bonds are frequently held by insurance agencies, brokerage firms, and banks, which are explicitly needed to carry the type of protection corresponding to their net capital. Among the possible types of loss that a fidelity bond can cover include fraudulent trading, robbery and forgery.
Even though they are classified as "bonds," fidelity bonds are, in reality, a type of insurance policy. They are usually classified as either first-party or third-party. The first-party fidelity bond protects organizations from illegal acts done by workers. On the other hand, the third-party fidelity bond protects organizations from related actions by people employed on a contractual basis. Along these lines, regardless of its name, a fidelity bond is exclusively a protection or insurance policy and is neither tradable nor would it be able to accumulate interest like a conventional bond. It is otherwise called an "honesty bond." In Australia, a fidelity bond is commonly called "employee dishonesty insurance," while in the U.K., it' is "fidelity guarantee insurance."
Why Fidelity Bonds Are Preferred and Used
Fidelity bonds can be viewed as a component of an organization's approach to business risk management. Such an insurance policy is preferred by an organization to provide coverage should the organization suffer damages or losses caused by illegal or criminal activities taken against the organization or its customers. This can also include money thefts from the business as well as stealing from the organization's client. This kind of policy may likewise cover losses due to a worker's forgery activities, which affect the business. Fidelity bonds additionally cover theft and burglary of the organization, destruction of its property, and illegal fund transfers.
Kinds of Fidelity Bonds
Specific types of fidelity bonds may cover particular instances. For example, workers committing fraudulent or illegal acts while performing specific services for clients. For instance, if a window repair specialist is requested and sent to a home wrecked by a storm and happens to steal jewelry from the owner, the company may be exposed to some legal sanctions for their employee's actions. Moreover, if a dog sitter were to use and take advantage of their access to a customer's home to steal money, or if a health provider took garments or a PC from a customer, a fidelity bond customized for such conditions could give the company the coverage that it particularly needs.
Some kinds of fidelity bonds may be required for some businesses to acquire. Fidelity bonds are needed to protect a company's retirement plan assets if an employee gains access to and steals assets exclusively set aside for employees' retirement plans. These are called ERISA fidelity bonds, where anyone who's in the position and gains access to the company's retirement assets is being bonded. These particular individuals might be bonded for up to ten percent of the funds for the retirement plan they have permission to gain access to.
Applying for a Fidelity Bond
As an employer of a company, you can apply for a fidelity bond if you're hiring a high-risk worker. Some states or regions oblige businesses to acquire fidelity bonds, but you may check your local laws for particular requirements. Employers can apply for fidelity bonds, and they can also recommend to their employees to purchase a fidelity bond policy. However, self-employed individuals are not qualified for a fidelity bond. Most of these bonds are obtainable through a surety company.
How Much Does a Fidelity Bond usually Cost?
Several factors dictate the price of fidelity bond insurance. First, it depends on the type of business you are running, the number of employees you have, and the types of customers you cater. The amount of coverage and deductibles also have an essential role in determining the costs of fidelity bonds. Normally, a bond will cost anywhere from 0.5 % to 1% of the coverage you buy.
Working with High-Risk Workers
Nowadays, employers are entitled to some incentives if they accept high-risk workers. They are usually given tax credits. These kinds of incentives provided to the employers help people with a checkered history get back to the workforce. Hence financial perks are being provided to the hiring company. Employees who qualify as "high-risk" include the following:
- a person who is an ex-offender, having had a police record
- a person with a bad credit record or someone who has declared bankruptcy in his own company
- a person who was a former military member and was discharged from the service
- an individual who lacks relevant work history or has been dismissed from a previous job or position
- a person who is an ex-addict and has undergone a rehabilitation
Fidelity bonds can also provide insurance coverage for the risks that a company may be worried about if they hire workers who may have criminal or illegal charges on record. In some countries, this kind of coverage is free of charge for the first six months. It becomes a part of the incentives for the hiring company.
How to Make a Claim for Fidelity Bond Insurance
Unfortunately, employee fraud and stealing do happen. When money or any asset goes missing and cannot be traced, it's imperative to report the said theft. It is crucial even if you don't have enough proof that an employee might have been responsible for the lost items. Some surety companies impose stringent policies on deadlines in providing relevant information on a reported loss. Understand the coverage of your insurance policy before ever making a claim. Just as any insurance policy, fidelity bonds also come with certain limitations and exclusions. When the claims' processing commences, the insurance company will create an investigation team that will try to get all the necessary facts to proceed with the claim's processing.