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What Is a Fidelity Bond?

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What Is a Fidelity Bond?

A fidelity bond is a type of insurance policy protecting businesses from theft, fraud, or dishonest third party acts. A fidelity bond is not a performance bond. A performance bond guarantees a contractor will pay the costs for materials and labor as a contract outlines. 

Is Fiduciary Liability Insurance the Same as a Bond?

No. Fiduciary liability insurance insures employee as part of an employment benefit plan against any breach in work responsibilities.

Who Would Buy a Fidelity Bond?

Employers typically buy this type of insurance to cover losses such as employee theft or embezzlement, since these types of fraudulent acts are not covered by traditional burglary and theft policies. More specifically, employers with clients in the following industries tend to purchase the bonds:

  • Banking
  • Finance
  • Investments
  • Janitorial services
  • House sitting
  • Dog sitters
  • Contractors
  • Physicians
  • CPAs
  • Dentists
  • Non-profit organizations

Are There Different Forms of the Bond?

Yes. A blanket bond applies to all employees working for the company. Individual bonds are only for one specific employee. Also, the Employee Retirement Income Security Act of 1974 (ERISA) requires pension plans to have fidelity bond coverage. The coverage is 10 percent or higher than the assets in the plan. The plan does include 401K plans. Under the ERISA, The type of dishonesty ad fraud covered includes:

  • Embezzlement
  • Larceny
  • Wrongful conversion
  • Misappropriation
  • Willful misapplication

Will I Have to Meet Certain Requirements Set by the Insurance Company?

An insurance company may require anyone obtaining this type of insurance to follow specific hiring practices. It may require the insured to keep the covered employee’s duties the same.

Should I Contact an Attorney about a Fidelity Bond? 

Employers need protection against employees who may commit fraudulent acts at work. Contact a business attorney to learn more about protecting yourself against employee theft. A business lawyer will explain how the bond will help you and how to obtain one.

Photo of page author Taelonnda Sewell

, LegalMatch Legal Writer

Last Modified: 05-06-2015 02:18 PM PDT

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