Are you protecting your business from employee dishonesty? If you aren’t yet, perhaps it’s about time that you do. Employee dishonesty can lead to significant financial losses for businesses. In fact, it is estimated that companies lose 5% of their revenue each year to fraud. How can you safeguard your business from such risks? This is where fidelity bonds come into play.

What Is a Fidelity Bond?

A fidelity bond is a type of insurance designed to protect businesses from financial losses due to fraudulent activities committed by their employees. Often referred to as "employee dishonesty insurance," a fidelity bond insurance policy can be a critical component of your risk management strategy. It provides peace of mind, knowing that your business is protected against internal threats.

Why Are Fidelity Bonds Used?

Fidelity bonds are used to mitigate the financial risks associated with employee misconduct. Businesses across various industries utilize these bonds to ensure they are covered in the event of dishonest acts by employees. By having a fidelity bond, companies can demonstrate their commitment to maintaining trust and integrity in their operations.

How Does A Fidelity Bond Work?

When a company purchases a fidelity bond insurance policy, it essentially enters into an agreement with the insurance provider. This agreement states that the insurer will compensate the business for financial losses resulting from covered fraudulent activities. If an employee commits an act covered by the bond, the company can file a claim with the insurer, who will then investigate and determine the compensation amount based on the policy terms.

What Do Fidelity Bonds Cover?

Fidelity bonds cover a range of fraudulent activities, ensuring that businesses are protected against various forms of employee dishonesty. Here are some of the key areas they cover:

Fraudulent Activities

Fidelity bonds protect against a wide array of fraudulent activities, including forgery, alteration of documents, and unauthorized fund transfers. These activities can cause significant financial harm to a business, and having a fidelity bond ensures coverage for such incidents.

Embezzlement

Embezzlement involves an employee stealing money or property entrusted to them. Fidelity bonds provide coverage for losses resulting from embezzlement, helping businesses recover the stolen funds and maintain financial stability.

Property Theft

If an employee steals physical assets or property from the company, fidelity bonds can cover the financial losses incurred. This includes theft of inventory, equipment, and other valuable items.

Theft of Employee Benefits

Fidelity bonds also cover the theft or misuse of employee benefits, such as retirement funds or health insurance. This ensures that businesses can protect their employees' interests and maintain trust within the organization.

What Do Fidelity Bonds Not Cover?

While fidelity bonds provide extensive coverage, there are certain limitations and exclusions. Understanding the full fidelity bonds coverage and what fidelity bonds do not cover is crucial for businesses to manage their risk effectively.

Illegal Acts By Non-Employees

Fidelity bonds do not cover illegal acts committed by individuals who are not employees of the company. This includes contractors, vendors, or other third parties.

Failure To Deliver Contracted Services

If a business fails to deliver services as per a contract, fidelity bonds will not cover the resulting financial losses. This is considered a performance issue rather than employee dishonesty.

Errors & Missed Deadlines

Mistakes or missed deadlines by employees that lead to financial losses are not covered by fidelity bonds. These are typically covered under other types of insurance policies, such as professional liability insurance.

Damaged Client Property

Damage to client property caused by employees is not covered under fidelity bonds. Businesses need to have specific insurance policies for such incidents.

Data Breaches & Cyberattacks

Fidelity bonds do not provide coverage for losses resulting from data breaches or cyberattacks. Companies should invest in cyber liability insurance to protect against these risks.

What Are The Types of Fidelity Bonds?

Fidelity bonds come in various types, each designed to address specific risks and industries. Here are some of the most common types:

Business Services Bonds

These bonds protect businesses that provide services on client premises, such as cleaning companies or home health care providers. They cover losses due to employee theft while on the client's property.

Condo & Homeowners Association Bonds

Condo and homeowners associations use these bonds to protect against dishonest acts by board members or employees handling association funds.

Employee Dishonesty Bonds

Employee dishonesty bonds cover losses resulting from dishonest acts by employees, including theft, fraud, and embezzlement.

ERISA Bonds

ERISA bonds are required by the Employee Retirement Income Security Act (ERISA) and protect employee benefit plans from losses due to fraud or dishonesty by plan officials.

Non-profit Organization Bonds

Non-profit organizations use these bonds to protect against fraudulent acts by employees or volunteers, ensuring that funds are used for their intended purposes.

Standard Employee Dishonesty Bonds

These bonds provide broad coverage for a variety of dishonest acts by employees, making them suitable for many types of businesses.

How Much Do Fidelity Bonds Cost?

The cost of a fidelity bond varies based on several factors, including the size of the business, the number of employees, and the type of coverage required. Generally, the cost is a small percentage of the bond amount. Companies with higher risk profiles or larger employee bases may face higher premiums.

Who Needs Fidelity Bonds?

Any business that handles significant amounts of money, property, or sensitive information should consider fidelity bonds. This includes financial institutions, healthcare providers, retail businesses, and service providers. Fidelity bonds are particularly essential for businesses with a high potential for employee dishonesty, as they provide a crucial layer of financial protection.

Where To Purchase Fidelity Bonds?

Fidelity bonds can be purchased from insurance agencies specializing in business insurance coverage. It's important to work with a reputable provider to ensure that you get the right coverage for your needs. One of the leading insurance agencies in Texas offering comprehensive business insurance, including fidelity bonds, is Hotchkiss Insurance. With offices in Houston, Dallas, San Antonio, Fort Worth, and Lubbock, TX, Hotchkiss Insurance provides tailored solutions to protect your business against employee dishonesty and other risks.

For more information, visit Hotchkiss Insurance, or check out their Houston location. Ready to get started? Contact Hotchkiss Insurance today.