Fidelity Bonds: What You Need To Know About How They Work
What Is a Fidelity Bond? A fidelity bond is a form of business insurance that offers an employer protection against losses that are caused by its employees’ fraudulent or dishonest actions. these types of bonds are also known as an honesty bond. This type of bond can protect a business against monetary or physical losses.
Understanding Fidelity Bonds
An employee committing fraudulent acts could expose a business to legal or financial penalties. Of course, this is in addition to the individual employee or employees who committed the act. As a result, companies face liability and penalties if an employee commits a criminal act.
These types of bonds cover firms for such damages. These types of bonds are designated as either a first-party or third-party:
- First-party bonds are policies protecting businesses from wrongful acts committed by employees.
- Third-party bonds protect companies from similar acts by individuals employed on a contract basis.
A fidelity bond are not like a regular bond. It is an insurance policy that is neither tradable nor can accrue interest.
What Are Fidelity Bonds?
Businesses utilize fidelity bonds as a form of enterprise risk management. As a result, they function as a sort of protection against losses caused by fraudulent or criminal employee actions.
Criminal employee actions can include cash thefts from the business. The bond could cover the company if the employee steals from a customer. They also cover a business if an employee commits forgery. A fidelity bond covers this type of criminality. Fidelity bonds also cover other criminal employee actions including robbery and burglary of the company safe. In addition to destruction of company property. In addition to the illicit transfer of funds. These are all covered by fidelity bond.
Types of Fidelity Bonds
These types of bonds are broken down into three different groups. Each one covers specific things. The most common forms of fidelity bond are:
- Business services bonds: Business services bonds are also called business bonds or janitorial service bonds. They are generally the most common type of fidelity bond. Their job is to protect clients when employees visit their premises.
- Employee dishonesty bonds: Employee dishonesty bonds protect companies if an employee misuses or steals financial or personal data.
- ERISA bonds: The Employee Retirement Income Security Act (ERISA) of 1974 demands that trustees of pension plans have a fidelity bond. ERISA requires coverage equal to at least 10% of the total plan’s assets. ERISA also covers inappropriate actions by those responsible for managers of 401(k)s and other pension plans.
How Do Fidelity Bonds Work?
Fidelity bonds are insurance products that offer employers protection against losses caused by employees’ fraudulent or dishonest actions. Should an event covered by the policy transpire, the company would file a claim and get reimbursed according to what it agreed to with the insurer.
What Are Some Examples of Fidelity Bonds?
The most common type of fidelity bond is the so-called business services bond. Fidelity bonds also protect against losses when an employee is on a customer’s premises. A fidelity bond tailored for such circumstances could provide the company with the coverage it needs.
What Are Two Popular Types of Fidelity Bonds?
Two popular types of fidelity bonds are business services bonds. They are specifically designed to protect clients when employees enter their home or place of business. The second type is an employee dishonesty bond. This protects companies from financial loss if an employee engages in fraudulent activities. Another common type of bond in this category is the ERISA (Employee Retirement Income Security Act) bond. As mentioned above, it protects retirement-plan beneficiaries should trustees steal from them.
The Bottom Line
Fidelity bonds are something that many businesses need, either out of choice or because their state or municipality demands it. Sadly, not everybody is honest, and it’s often worth paying the premium for peace of mind and to reassure customers.
Turbo Surety Group Is Here To Help You Get The Bond You Need!
The process for getting a surety bond in Florida can be simple and painless when your business works with Turbo Surety Bonds. Our experts are ready to answer your questions. You can also just call us at 1-833-436-7987 or email us today.