Fidelity Bond

What is a Fidelity Bond?

A fidelity bond is a form of business insurance that offers an employer protection against losses that are brought about by its employees' fraudulent or untrustworthy actions. This form of insurance can safeguard against monetary or physical losses.

Understanding Fidelity Bonds

Assuming a company has employees that commit fraudulent acts, the company itself might be presented to legal or financial penalty notwithstanding the individual employee or employees who committed the act. Thus, companies are at risk of being presented to such punishments, particularly firms with a large number of employees. Fidelity bonds are insurance policies that cover firms for such damages.

Fidelity bonds are most frequently held by insurance companies, banks, and brokerage firms, which are explicitly required to carry protection proportional to their net capital. Among the potential forms of loss a fidelity bond covers incorporate fraudulent trading, theft and imitation.

Despite the fact that they are called "bonds," fidelity bonds are actually a form of insurance policy. They are commonly designated as either first-party or third-party; first-party fidelity bonds are policies protecting businesses from wrongful acts committed by employees, while third-party fidelity bonds safeguard companies from comparative acts by individuals employed on a contract basis. Hence, regardless of its name, a fidelity bond is exclusively an insurance policy and is neither tradable nor can it accrue interest like an ordinary bond. It is otherwise called an "genuineness bond." In Australia, a fidelity bond is called "employee deceptive nature insurance," and in the U.K. it's called "fidelity guarantee insurance."

Why Fidelity Bonds Are Used

Fidelity bonds can be viewed as part of a business' approach to enterprise risk management. Such an insurance policy as a kind of protection should the company endure losses brought about by fraudulent or criminal employee actions taken against the company or its clientele. This can incorporate cash thefts from the business as well as though the employee takes from a customer of the company. Acts of falsification by an employee that influence the business may likewise be covered by this type of policy. Burglary and thievery of the company safe, destruction of company property, and the unlawful transfer of funds are likewise covered by fidelity bonds.

Types of Fidelity Bonds

Specific forms of fidelity bonds might cover particular occasions, for example, employees committing fraud or unlawful acts, while performing services for customers. For instance, assuming a window repair worker is shipped off a home that was harmed by a tempest and takes jewelry from the residence, the company might have exposure concerning their employee's actions. In like manner, on the off chance that a canine sitter were to utilize their access to a client's home to take money, or on the other hand assuming a home wellbeing provider took garments or a PC from a client, a fidelity bond tailored for such conditions could give the company coverage its necessities.

A few types of fidelity bonds might be ordered for businesses to get. Protecting the company's retirement plan assets can require fidelity bonds in the event an employee gains access to and misuses assets set to the side for retirement plans. These ERISA fidelity bonds for the most part incorporate bonding any individual who regularly approaches the company's retirement assets. The individuals may be bonded for up to 10 percent of the value of the funds they are permitted access to in the retirement plan.

Features

• This form of insurance is viewed as a part of a company's risk management strategy.
• Fidelity bonds are insurance policies which shield policyholder companies from wrongful acts committed by employees.
• Fidelity bonds are not tradable securities.