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Fidelity Bonds

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What is a Fidelity Bond?

Fidelity bonds protect businesses against potential fraudulent and harmful actions that their employees may commit. They are similar to an insurance policy, covering the holder against losses suffered due to any dishonest acts. Sometimes, they are referred to as Honesty bonds.

In most cases, business owners obtain fidelity bonds voluntarily in order to safeguard their company's monies and property, or that of the clients for whom the employees conduct services. There is also one type of fidelity bond, which is required by law, called the ERISA bonds, which protect employee benefit plans.

Fidelity bonds are different from surety bonds. The latter are contractual agreements between an authority that requires them, an entity that has to obtain bonding, and a surety that provides it.

Thus, surety bonds don't protect the principal. In the case of fidelity bond coverage, however, it safeguards your business interests and your clients' rights against employee dishonesty.

Questions About Fidelity Bonds

What types of Fidelity bonds are there?

Company owners often obtain business services bonds in order to get protection against fraudulent activities of their employees who work on clients' premises.

Janitorial bonds are a type of business services bonds but specialized for cleaning businesses.

Employee dishonesty bonds serve as a safety net for businesses against theft, burglary, forgery, and embezzlement that their employees may commit on the job against their business.

Financial institution bonds are similar to employee dishonesty bonds but targeted at financial institutions. They protect the business in case its employees commit burglary, robbery, or forgery of physical property or assets.

ERISA bonds are the only type of fidelity bonds which are legally required in certain situations. Individual and entities managing employee retirement plans have to obtain them, as per the Employee Retirement Income Security Act (ERISA). Since the business owner has access to make decisions on the company 401K plan, this bond protects the employees against the boss stealing from the fund. 

What are the Bonding Costs?

The formulation of the price that you have to pay for your fidelity bond is based on a number of indicators. The type of your business certainly affects the premiums, as well as the security mechanisms that you have in place. Another important factor is the amount of coverage that you would like to obtain. Last but not least, the number of employees whom you want to cover with the fidelity bond also affects the price.

In the case of ERISA bonds, the pricing is formulated in a different way. The bond amount can be between $1,000 and $1,000,000, and depends on the types of assets that the managed employee benefit plan has.

Is Bad Credit a Problem for Obtaining a Fidelity Bond?

No. Fidelity bonds are not like surety bonds, whose premiums are typically calculated on the basis of the business owner's personal credit score.

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