A fidelity bond is insurance protecting policyholders from losses incurred by the policyholder as a result of fraudulent or dishonest acts of certain individuals (usually employees of a business). Employee Dishonesty Bonds are the most common form of fidelity bonds, protecting a business from the loss of company property from employees with the intent to obtain an improper financial benefit from the loss, either for themselves or another party.
While still referred to as bonds, Fidelity bonds have characteristics of both surety bonds and traditional insurance policies. As with a surety bond, a fidelity bond carrier maintains the right to recover any losses from the responsible party, usually an employee of the principal, the business who purchased and is named on the bond. However, like insurance, a fidelity bond protects the business that purchased the bond (remember: surety bonds provide no coverage for the principal and require the business to repay the surety for all losses). Fidelity bonds provide coverage for the principal and/or its customers and do not require the business to reimburse the surety company for all losses.
Fidelity bonds usually cost between 0.5% to 1% of the bond amount, but the cost of a specific fidelity bond depends on the type of bond needed. Some fidelity bonds (ERISA bonds, Employee Dishonesty bonds and Janitorial bonds) are considered low-risk and are offered to businesses at set rates depending on the size of the bond and the number of employees covered (see examples below). Commercial Crime bond costs are determined by the size of the bond, number of employees, the services offered by the business, and controls in place to prevent losses.
|# of Employees||$5,000||$10,000||$25,000||$50,000||$100,000|
|5 or Less||$100||$126||$187||$257||$359|
|Bond Amount||3 Year Cost|
For most fidelity bonds, a personal credit check of the business owner is not required to purchase the bond. The surety company will review certain information about the business to determine approval and costs, but this typically does not include a personal or business credit report. Ultimately, the surety insurance company determines how it will underwrite and price a fidelity bond, and some companies may be more or less stringent than others.
Fidelity bonds are insurance policies that come in many different forms; however, there are some common fidelity bonds needed for many businesses.
Employee Dishonesty Bond
Protects a business from the dishonest or fraudulent acts of its employees.
Janitorial Bond / Business Services Bond
Protects the customers of a business from the fraudulent or dishonest acts of their employees while on the customer’s premises (home or office).
Commercial Crime Bond
Protects a business from the dishonest or fraudulent acts of its employees, and may contain other coverages that protect its customers.
ERISA Bond / 401k Bond
Protects participants in a retirement plan (401k, pension, profit-sharing) or other benefits plan covered by ERISA from the fraudulent or dishonest acts of the plan trustees.
The term ‘blanket fidelity bond’ or simply ‘blanket bond’ refers to the extent of the coverage offered by the policy. For blanket fidelity bonds, the word ‘blanket’ is used to describe coverage that extends to all of the customers of the business. Most fidelity bonds are issued with blanket coverage. The alternative to a blanket bond, a client-specific fidelity bond, covers only customers specifically named in the policy. Client-specific fidelity bonds are most often utilized when a business enters into a contract with a customer requiring fidelity coverage.
Suretypedia groups Fidelity Bonds into 4 unique categories, primarily by industry and sub-industry. Below is a link to more information on each bond category: