A fidelity bond provides protection against losses which occurred as a result of fraudulent acts. This type of bond typically covers a business in case they have losses because of a dishonest employee. These are called bonds, but they are really insurance policies that cover any losses a business may experience due to acts of a dishonest employee. They protect against loss of securities, monies, or other business properties.
Businesses such as brokerage firms and insurance companies are required to carry fidelity bonds. The size of the bond is proportional to the company’s net capital.
Fidelity bonds cannot be traded nor do they accrue interest. Fidelity bonds may be purchased for two different situations: first-party and third-party bonds.
First-party fidelity bonds provide a company protection when an employee commits an intentional wrongful act such as embezzlement or forgery. A third-party fidelity bond provides a company protection if a contractor or a contractor’s employee commits an intentional wrongful act.
A Commercial Crime Fidelity Bond protects a business against wrongful acts by any employee involved in handling financial transactions or money.
A Business Service Fidelity Bond protects property owners against wrongful acts committed by a service provider such as a maintenance worker or a pet sitter.
An ERISA Fidelity Bond protects both beneficiaries and participants against dishonest or wrongful acts committed by a fiduciary or employee who handles employee pension or benefit plans. These include a company’s 401K or their company pension plan. This type of bond is the only one which is required by law.
The cost of a fidelity bond will vary depending on the amount of coverage and the type of bond. A company can usually purchase a fidelity bond with $500,000 worth of coverage for between $300 and $400 a year.
Fidelity bonds cover all employees in a company. They may also cover directors, trustees, partners, members, and temporary employees.