A fidelity bond is a form of business insurance that offers an employer protection against losses caused by employees’ fraudulent or dishonest actions. Also known as an honesty bond, this type of insurance can safeguard against both monetary and physical losses.
In Australia, it’s referred to as employee dishonesty insurance, and in the United Kingdom, it’s called fidelity guarantee insurance.
Key Takeaways
- Fidelity bonds are insurance policies that protect employers from wrongful acts committed by employees.
- Fidelity bonds are not tradable securities.
- This insurance is a vital component of a company’s risk management strategy.
Understanding Fidelity Bonds
If a company has employees who commit fraudulent acts, it may face legal or financial penalties, and the impact could be substantial, especially for large firms. Fidelity bonds mitigate this risk by covering the company’s damages. While they are termed as
Related Terms: business insurance, insurance claim, bond, accrue, banker’s blanket bond, enterprise risk management.
References
- Insureon. “Fidelity Bonds for Technology Businesses and IT Professionals”.
- Financial Industry Regulatory Authority. “SEA Rule 15c3-1 and Related Interpretations: 15c3-1 Net Capital Requirements for Brokers or Dealers.”
- U.S. Department of Labor. “Protect Your Employee Benefit Plan with an ERISA Fidelity Bond”.
- Nationwide. “Fidelity Bonds”.
- State of Alaska, Department of Labor and Workforce Development. “Fidelity Bonding Program”.
- State of Michigan, Labor and Economic Opportunity. “Fidelity Bonding Program”.
- Texas Workforce Commission. “Fidelity Bonding”.
Get ready to put your knowledge to the test with this intriguing quiz!
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## What is the primary purpose of a fidelity bond?
- [ ] To provide health insurance for employees
- [ ] To cover property damage
- [x] To protect a business against employee dishonesty
- [ ] To ensure liability insurance
## Who typically purchases a fidelity bond?
- [ ] Employees
- [ ] Vendors
- [x] Employers
- [ ] Customers
## Which type of risk do fidelity bonds usually not cover?
- [ ] Theft by employees - money or property
- [ ] Fraudulent trading
- [x] Natural disasters
- [ ] Forgery on the part of employees
## What industry heavily relies on fidelity bonds for protection?
- [ ] Farming
- [ ] Publishing
- [x] Financial services
- [ ] Construction
## Fidelity bond premiums are usually based on which of the following factors?
- [ ] Size of the company
- [ ] Nature of the employee's job
- [x] All of the above
- [ ] None of the above
## What federal requirement exists for certain businesses to carry a fidelity bond in the United States?
- [x] Employee Retirement Income Security Act (ERISA)
- [ ] The Securities Act
- [ ] The Sherman Antitrust Act
- [ ] The Federal Trade Commission Act
## What entity issues fidelity bonds?
- [ ] Banks
- [ ] Brokerage firms
- [x] Insurance companies
- [ ] Legal firms
## Can a fidelity bond provide indirect coverage for business partners associated with the insured company?
- [x] Yes, under certain conditions
- [ ] No, never
- [ ] Only in the case of financial industry partners
- [ ] Only in multinational companies
## How does a fidelity bond differ from general liability insurance?
- [ ] It covers environmental hazards
- [ ] It includes protection against theft by outsiders
- [ ] It focuses on customer injuries
- [x] It specifically covers dishonest acts by employees
## Which of the following types of losses would most likely be covered by a fidelity bond?
- [ ] Damage due to fire in the office
- [ ] Losses from adverse market conditions
- [x] Theft of client assets by an employee
- [ ] Legal fees from intellectual property disputes
