Every business owner would want to take preventive actions to safeguard the business from outside risks, any litigations, or natural disasters. But risks to the business can also come from inside your business. By neglecting such risks like employee theft and fraudulence activities can create a mess on the brand reputation. These issues have costed a huge loss for employers every year in the US. For successfully gaining protection against such risks, the majority of businesses are turning to Fidelity Bonds.


What is a Fidelity Bond?

A fidelity bond is an insurance that safeguards your business against risks caused by theft or fraudulent activities by employees. There are other insurance policies like commercial property insurance that do not take the responsibility of covering money or properties stolen by employees. Even professional liability policies do not cover fraudulent activities or purposeful acts within the company. But a Fidelity bond can aid in managing the exposure of your business to such internal risks. Many states mandate businesses to buy Fidelity bonds before providing a business license to them. But it is the responsibility of every business to have Fidelity bond coverage to their businesses.


Types of Fidelity bonds:

First-party fidelity bonds:

This bond safeguards your business against malicious activities internally by the employees. If your business process involves more close association of employees with the finances, the bond could be of great use. It will offer financial payback if there are cases of employees stealing money from the business.

Third-party fidelity bonds:

This type of bond will repay the clients in the case of a malicious act by an employee in mismanaging the business/financial data, credit card numbers, social security numbers, etc. It is important if your business involves client contracts in banking or finance.


What do fidelity bonds cover?

Fidelity bonds protect the business from theft, dishonesty, forgery, fraudulent, or any criminal activities by employees. Below are the instances and examples covered by fidelity bonds in safeguarding your business.

Forgery: Employees may perform a forgery to performing any fraudulent crimes or theft, a business may end up facing legal charges. For instance, a business advisor at your company could forge a signature and steal a huge amount of finances. Having a fidelity bond will ensure to refund the stolen finances ensuring no disaster.

Identity theft: Many businesses will involve the usage of credit cards, Social security numbers, and other ID proofs. Misusing such sensitive information by employees by using them for individual gains, will lead to serious legal issues. For instance, an employee can use a client’s credit card number to buy any type of product. Fidelity bond will come to rescue as soon as the news hits you and the crime is justified.


Fraudulent electronic funds transfer: The majority of businesses opt for digital means of money transfer especially more in the technology and finance sectors. A dishonest employee could fraudulently transfer funds electronically and use it for personal interests. For instance, an employee in your technology company could pull the data from clients DB and make a fraudulent electronics fund transfer to his accounts. Once this fraud is discovered, a fidelity bond will reimburse all the charges of such illegal transfers.

Illegal data access:

Businesses store important and confidential client data may be at risk if they have multiple employees with access to this data. If an employee uses the data without permission, it could lead to serious litigations. For instance, an employee at a computer repair center gets a way to access data from the client’s computer. If the client knows about this and files a lawsuit against the company, a fidelity bond will pay for the fees and even settlement.


What do Fidelity bonds don’t cover?

Failing to meet agreement terms and services:

A business might agree to a contract of delivering certain products or services to a client before a stipulated period. If the business fails in meeting them, a fidelity bond will cover the losses to you, by paying the clients. For instance, if your company agrees to deliver certain services for a contract of certain months. But after some time, due to any reason, if the employees didn’t turn up to the company, it could fail in meeting the demand. If the business has a surety bond, then it will reimburse the loss to the client without any room to legal issues.

Missed timelines:

Some clients may complain and impose litigation upon a business claiming your work to be error-prone, unprofessional, or not meeting the timelines. For instance, being an instrument repair business, you may receive an order from a client to fix a machine within a stipulated time. If the business fails to meet the deadline, then it may have a direct impact on the client. They may impose litigation on the business for the loss. A professional liability policy will take care of this issue.

Harm to property:

Businesses may involve indulging in works with client instruments or electronic gadgets. If an employee causes harm to the client’s property, general liability insurance will cover the cost of repairs.


There is an enhancement in the usage of technology across all types of business. Hence, there are also chances of cyberattacks on companies which is covered by cyber liability insurance services. For instance, if a mobile app development company has undergone a cyberattack that has caused a breach of the client’s data. The company’s cyber liability insurance will pay for the legal charges if the clients file a lawsuit against the company.


Bottom line:

There are many types of insurances that are needed by the company which causes many organizations to often neglect Fidelity bond. In the era of advanced technological enhancements, Fidelity Bonds can give your business the coverage it needs to protect against losses due to employee dishonesty. But be sure to be associated with experienced firms like Risk Managers, LLC who can plan the best insurance solutions for customers from close to 4 decades.



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