- Fidelity bonds are a type of business insurance that protects against financial losses caused by the dishonest or fraudulent actions of your employees.
- You might need a fidelity bond if your employees come into contact with valuable assets or finances belonging to a client or your company.
- There are various types of fidelity bonds tailored to different needs and industries.
- ERISA fidelity bonds require coverage of at least 10% of the total funds handled the previous year.
- Fidelity bonds can be quite affordable depending on the bond amount. Typically you are charged a small percentage of the total bond value. For example, a $2,000 bond charged at 1% would cost $20 annually.
- We recommend using an online tool to save time and get matched with insurance policies that are the right fit for your business.
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Fidelity Bond Insurance: 2024 Coverage for Small Businesses
Fidelity bonds start as low as $22/month*
*Applies to quotes made through Insureon only. Average monthly premium calculations are estimates and may vary by state, insurance provider, and the nature of your business. Where required or allowed by state law, insurance taxes, service fees, and other surcharges may be included and billed separately from the premium.
Quotes available through:
On This Page
- Key Takeaways
- Our top recommended fidelity bond insurance companies
- What is a fidelity bond?
- What will a fidelity bond cover?
- Types of fidelity bond insurance
- Who needs a fidelity bond?
- Pros & cons of fidelity bonds
- How much do fidelity bonds cost?
- Other important types of business insurance
- FAQs on fidelity bond insurance
- Related topics
On This Page
- Key Takeaways
- Our top recommended fidelity bond insurance companies
- What is a fidelity bond?
- What will a fidelity bond cover?
- Types of fidelity bond insurance
- Who needs a fidelity bond?
- Pros & cons of fidelity bonds
- How much do fidelity bonds cost?
- Other important types of business insurance
- FAQs on fidelity bond insurance
- Related topics
Reviewed By
Blake Esken - Los Angeles Times
Fidelity bonds provide a crucial safety net for your business, covering scenarios ranging from theft to embezzlement.
This is one of the best types of business insurance for protecting your business against financial losses that arise from employee dishonesty or fraud.
In this guide, we’ll look at the risks involved with running a business and how safeguards like ERISA fidelity bonds and fraud coverage can protect small business owners and shield your assets.
To help you better understand this coverage, we’ll explore topics like:
- What a fidelity bond is and what it covers
- Types of fidelity bond insurance
- How much fidelity bonds cost
Our top recommended fidelity bond insurance companies
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Fidelity Bond - BOP - General Liability - Professional Liability - Workers' Comp - Sole Proprietors - Commercial Auto
What is a fidelity bond?
A fidelity bond (also called employee dishonesty insurance) is a type of business insurance that provides coverage and reimbursement against employee theft, fraud, or dishonestly that could harm your company or your clients.
Imagine you discover a team member has been stealing from the company by shorting the cash register every night.
A fidelity bond would cover these funds and the resulting lawsuit.
Fidelity bond vs. E&O insurance
It’s easy to confuse fidelity bonds with errors and omissions E&O insurance since they’re both often mentioned in relation to launching a new business; however, it’s important to understand the distinction.
Fidelity bonds protect policyholders against possible losses resulting from fraud or other acts of purposeful dishonesty committed by employees, whereas E&O insurance protects companies and their employees from accusations of negligence, resulting from errors or subpar work.
Anyone who provides a service should have E&O insurance on hand as a basic protection, whereas fidelity bonds are good to have in most industries and required only in certain industries.
However, particular industries ,such as those who practice medicine, may require additional coverage like malpractice insurance.
If you aren’t sure which is right for you, a licensed insurance agent can help steer you in the right direction.
What will a fidelity bond cover?
Fidelity bonds cover financial losses caused by the fraudulent or dishonest actions of your employees.
Examples of scenarios covered under this type of bond may include:
- Theft of property by an employee
- Embezzlement
- Forgery
- Misappropriation
- Illegal electronic funds transfer
- Willful misapplication
The exact coverage included with your fidelity bond may depend on the type of insurance you choose.
Types of fidelity bond insurance
Different types of fidelity bonds are meant to protect against specific risks. The nature of your business, and even the roles your employees play, will usually determine the type of fidelity bond you choose.
To help you get started in selecting the right product for your business, here are some of the most common fidelity bonds:
1
Business services bonds
Business services bonds are the most common type of fidelity bond, to the point where many people use the terms interchangeably. These bonds safeguard your business against losses incurred by a client or customer because of the actions of your employee. This most often happens when a staff member is sent out to a client’s home or business. Imagine you have an HVAC technician who’s sent out on a job, and after the AC is fixed, the client discovers that their grandma’s necklace is nowhere to be found. A business service bond would cover the damages so you don’t have to.
2
Standard employee dishonesty bonds
This type of bond covers dishonesty that takes a less tangible form. It might be caused by one of your restaurant servers copying guests’ credit card numbers and going on late-night shopping sprees or identity theft that happens because your employee was photocopying client Social Security numbers and using the data to commit fraud.
3
ERISA bonds
The Employee Retirement Income Security Act (ERISA) of 1974 put protections in place to prevent trustees in charge of retirement funds and pensions from taking the money and leaving other employees in the lurch. Anyone who handles these types of funds is legally required to be bonded for at least 10% of the total amount of money they handled the previous year. Bond amounts can’t be less than $1,000 or more than $500,000.
4
Non-profit organization bonds
Non-profit organization bonds are similar to standard employee dishonesty bonds, but you’re safeguarding your business against the actions of workers of a non-profit entity versus a for-profit company.
5
Condo and homeowners association bonds
Condo and homeowners associations don’t follow the typical structure of a for-profit business, so it makes sense that these organizations would have their own form of protection. HOA bonds protect these associations from losses due to an employee or volunteer who steals funds through embezzlement, computer fraud, straight-up theft, forgery or funds transfer fraud.
Who needs a fidelity bond?
Every business that has employees who regularly handle valuables, company cash, or clients’ assets should have fidelity insurance.
This includes businesses where employees may oversee company financials (someone in the billing department at a medical office, for example) or handle cash directly (e.g., a cashier at a gas station).
Fidelity bonds are also recommended for businesses that send employees out to clients’ properties.
A few examples of businesses that may benefit from fidelity bonds include:
- E-commerce businesses or retailers
- General contractors
- Handymen
- Landscapers
- Electricians
- Plumbers
- Painters
- Housekeepers and cleaners
Employees of these businesses are often in proximity to items owned by customers, and if all the money disappears from the clients’ kids’ piggy banks, you’ll be glad you had that bond.
Remember, too, that ERISA bonds are required for pension plan trustees who oversee employee benefits and retirement funds.
Pros & cons of fidelity bonds
Ensure you’re making the right decision about coverage by reviewing the pros and cons of fidelity bonds.
PROS
- Protects your business from potentially devastating financial losses
- Provides coverage other insurance won’t (intentional dishonest acts)
- Allows clients & customers to trust their assets are protected
- Allows protections to facilitate hiring people with a criminal record
CONS
- Won’t cover losses from errors, negligence, or poor business decisions
- Bonds with higher coverage limits can become quite expensive
- Having this coverage may promote hiring less trustworthy workers
- Filing bond claims can be complex and time consuming
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How much do fidelity bonds cost?
The cost of a fidelity bond is usually a percentage of the coverage amount. For example, if you need $100,000 in coverage and the rate is 1%, the cost would be $1000 per year.
Smaller businesses might pay as low as a few hundred dollars per year for fidelity bond insurance while larger companies with more coverage needs could pay several thousand dollars per year.
Fidelity bonds start as low as $22 per month*
*Applies to quotes made through Insureon only. Average monthly premium calculations are estimates and may vary by state, insurance provider, and the nature of your business. Where required or allowed by state law, insurance taxes, service fees, and other surcharges may be included and billed separately from the premium.
In addition to the coverage amount, several other factors influence the cost of fidelity bonds:
1
Industry-specific risks
High-risk industries, such as finance or healthcare, typically pay more for fidelity bonds as there are more opportunities and motives to steal. Conversely, low-risk businesses generally pay less for such coverage.
2
Your credit score
Similar to a line of credit, your personal credit score plays a role in determining how much you’ll pay for a fidelity bond. A clean credit history can help keep expenses low, while poor credit increases bond costs.
3
Handling sensitive information
Data is often overlooked as asset that can be misappropriated or stolen. However, storing large volumes of sensitive customer data increases the risk and, consequently, the cost of fidelity bond insurance.
4
The number of employees with access to sensitive data
The more employees with access to sensitive data, the higher your coverage costs will be as this increases your risk.
Fidelity bond costs can vary widely, so it’s best to get personalized quotes from insurance providers based on your specific business details.
Other important types of business insurance
In addition to a fidelity bond, you may want to also consider getting additional types of business insurance, such as:
FAQs on fidelity bond insurance
Does a bond size affect fidelity bond costs?
Bond size and overall cost are tightly linked. The bigger the bond, the more you’ll pay for that coverage. Your total cost is usually a percentage of the bond amount. If the bonding company has a premium rate of 1%, for example, you’d pay $250 for a $25,000 bond.
Does your credit score influence a fidelity bond cost?
Financial experts compare fidelity bonds to a line of credit, so your credit score does come into play. When you apply for a bond, the insurance company will look at your financial history, including your credit report. If you have poor credit, you may still be able to get bonded, but your costs will be higher.
Is a fidelity bond the same as a crime policy?
A fidelity bond covers some types of crime, but it isn’t a blanket policy. If you want more comprehensive coverage, you may need to consider a crime policy that covers criminal acts beyond fraud, embezzlement and other types of employee dishonesty.
How much fidelity bond coverage do I need?
In most cases, the size of your fidelity bond is completely up to you. You want enough coverage to protect against the dishonest acts most likely to occur. The riskier your industry or type of business, the higher your bond should be. With an ERISA bond, regulations mandate coverage of at least 10% of the total funds handled the previous year.
About the Author
Alana Luna (Musselman) is a versatile storyteller with over a decade of writing experience. She is passionate about helping people build their business through unique and engaging content.
Some examples of her current freelance projects include building content strategies for small businesses, completing industry research to build case studies, crafting buyer guides and more.
She has a passion and keen ability to simplify complex ideas through storytelling to make it easier for readers to understand hard-to-digest information. To accomplish this, Alana’s writing holds strong three principles – content that educates, engages and entertains.
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