Fidelity Bond Policies: What They Cover and Why You Need One

Fidelity Bond Policies: What They Cover and Why You Need One

When it comes to safeguarding your business against potential financial losses caused by employee dishonesty, a fidelity bond policy can be a game-changer. But what exactly is it, and why should you consider getting one?

Here’s what you need to know about fidelity bond policies quickly:
1. Purpose: Protects businesses from financial losses due to employee dishonesty or fraud.
2. Importance: Provides peace of mind and builds trust with clients.
3. Types of Coverage: Theft, fraud, embezzlement, unauthorized electronic transfers, and more.

Fidelity bonds act as a form of insurance that reimburses businesses if an employee engages in dishonest or fraudulent activities. These bonds are crucial not only for financial protection but also for maintaining trust with clients and ensuring your business’s continued success. In today’s digital world, where security threats are rampant, having this extra layer of protection is essential.

Brief Infographic About Fidelity Bond Key Points: Purpose, Importance, And Types - Fidelity Bond Policy Infographic Brainstorm-4-Items

Understanding Fidelity Bond Policies


A fidelity bond policy is a type of insurance that protects businesses from financial losses caused by fraudulent acts or dishonesty committed by employees. Think of it as a safety net that catches the financial fallout when an employee does something wrong, like stealing money or committing fraud.


Fidelity bonds offer comprehensive protection against various types of dishonest behavior. Here’s what they typically cover:

  • Theft: This includes stealing money, inventory, or other valuables.
  • Fraud: Covers fraudulent activities like altering financial statements or forging checks.
  • Embezzlement: Protects against employees siphoning funds for personal use.
  • Unauthorized Electronic Transfers: Covers illegal transfers of funds through electronic means.
  • Misuse of Personal Data: Such as Social Security numbers or credit card information.

However, it’s important to know what’s not covered. Fidelity bonds usually don’t cover:

  • Illegal acts by non-employees.
  • Failure to deliver contracted services.
  • Damages to client property or cyberattacks leading to data breaches.


There are several types of fidelity bonds, each tailored to specific needs:

  1. Business Services Bonds: These are the most common and protect clients when employees visit their premises. For example, if a dog sitter steals money from a client’s home, this bond would cover the loss.

  2. Employee Dishonesty Bonds: These protect the company itself from dishonest acts by employees, such as embezzlement or data misuse.

  3. ERISA Bonds: Required by the Employee Retirement Income Security Act (ERISA) of 1974, these bonds protect beneficiaries of retirement plans from theft by trustees.

  4. Federal Bonding Program Bonds: These bonds encourage employers to hire high-risk applicants by reimbursing losses from dishonest acts.

Understanding these types can help you choose the right fidelity bond policy for your business. Whether you manage a janitorial service or oversee a retirement plan, there’s a fidelity bond designed to meet your specific needs.

Key Differences: Fidelity Bonds vs. Other Insurance

When considering a fidelity bond policy, understand how it differs from other types of insurance. Let’s break down the key differences between fidelity bonds, crime policies, and fiduciary insurance.

Fidelity Bonds vs. Crime Policy

Fidelity Bonds protect businesses from losses due to employee dishonesty, such as theft or fraud. This type of bond is specifically designed to cover intentional wrongful acts by employees. For example, if an employee steals money or sensitive data, the fidelity bond will cover the loss.

Crime Policies, on the other hand, provide broader coverage. They not only protect against employee dishonesty but also cover other criminal acts such as robbery, burglary, and forgery. Crime policies can include a variety of insuring agreements to protect different aspects of a business, from computer fraud to general theft.

Key Difference: Fidelity bonds focus on employee dishonesty, while crime policies offer broader protection against multiple types of criminal acts.

Fidelity Bonds vs. Fiduciary Insurance

Fiduciary Insurance is designed to protect individuals who manage employee benefit plans, such as 401(k)s and pension plans, from claims of mismanagement. This type of insurance covers breaches of fiduciary duty, errors, and omissions that could harm plan beneficiaries.

Fidelity Bonds, especially ERISA bonds, also protect against dishonest acts by those managing retirement plans. However, ERISA bonds are specifically required by the Employee Retirement Income Security Act (ERISA) to cover at least 10% of the plan’s assets against theft or fraud by fiduciaries.

Key Difference: Fiduciary insurance covers breaches of duty and errors, while fidelity bonds focus on protecting against dishonest acts.

Commercial Crime Insurance

Commercial Crime Insurance is another layer of protection for businesses. It covers a wide range of criminal acts, including those by employees and third parties. This type of insurance is essential for businesses in high-risk industries, such as financial institutions, where the risk of theft, fraud, and other crimes is higher.

Commercial crime policies can be tailored to specific industries with different forms, such as:

  • Financial Institution Bonds for banks and brokers
  • Credit Union Blanket Bonds for credit unions
  • Standard Form No. 25 for insurance companies

Key Difference: Commercial crime insurance offers comprehensive coverage for various criminal acts, tailored to specific industries, whereas fidelity bonds focus on internal threats like employee dishonesty.

Understanding these differences can help you choose the right coverage for your business. Whether you need protection against employee theft, breaches of fiduciary duty, or a broad range of criminal acts, there’s a policy designed to meet your needs.

What Fidelity Bond Coverage Entails

Fidelity bond policies cover a range of dishonest acts by employees that can lead to significant financial losses for businesses. Here’s a breakdown of what these policies typically include:

ERISA Fidelity Bond

The Employee Retirement Income Security Act (ERISA) of 1974 requires trustees of pension plans to have fidelity bond coverage. This coverage must be equal to at least 10% of the plan’s assets, protecting beneficiaries from theft or fraudulent actions by those managing the plans. For example, if a trustee misappropriates funds from a 401(k) plan, an ERISA bond would cover the loss, ensuring the beneficiaries are not financially harmed.

Acts of Fraud

Fidelity bonds protect against various fraudulent activities committed by employees. This includes forgery, credit card fraud, and other deceptive practices aimed at financial gain. For instance, if an employee uses a company credit card for personal expenses, the fidelity bond would reimburse the business for the unauthorized charges.

Employee Dishonesty

One of the primary functions of a fidelity bond is to safeguard businesses from employee dishonesty. This can involve employees stealing money, securities, or property. For example, if a cashier at a retail store pockets cash from the register, the fidelity bond would cover the stolen amount, minimizing the financial impact on the business.


Theft is a common concern for many businesses, and fidelity bonds provide a safety net against such losses. Whether it’s an employee stealing inventory, office supplies, or cash, the bond ensures the business is reimbursed. For instance, if an employee at a warehouse takes products without permission, the fidelity bond would compensate the company for the stolen items.


Embezzlement is another critical area covered by fidelity bonds. This involves employees misappropriating funds they were trusted to manage. For example, if an accountant diverts company funds into a personal account, the fidelity bond would cover the embezzled amount, protecting the business from severe financial damage.

Fidelity bonds are essential for protecting businesses from the financial repercussions of dishonest acts by employees. They offer peace of mind and ensure that companies can recover quickly from such incidents. In the next section, we’ll discuss the eligibility criteria and duration of fidelity bonds.

Eligibility and Duration of Fidelity Bonds

Eligibility Criteria

Fidelity bonds are designed to help businesses hire at-risk job applicants who might otherwise struggle to find employment. Who is eligible? Here are the main groups:

  1. Ex-offenders: Individuals with a criminal record.
  2. Recovering substance abusers: Those recovering from alcohol or drug addiction.
  3. Welfare recipients: People with poor financial credit.
  4. Economically disadvantaged youth and adults: Those who lack a work history.
  5. Individuals dishonorably discharged from the military: And others who face employment barriers.

To be eligible, the individual must meet the legal working age in the state where the job is located. Self-employed individuals are not eligible for fidelity bonding services.


A standard fidelity bond issued through the Federal Bonding Program provides coverage for six months. During this period, the employer can assess the new hire’s job honesty. If the employee proves trustworthy, they can become commercially bondable, making it easier for them to find future employment.

Inflation Guard

Inflation can affect the value of the bond coverage. Some fidelity bond policies offer inflation guard features, which automatically increase the coverage amount to keep pace with inflation. This ensures that the bond remains effective even as the cost of potential losses rises over time.

Federal Bonding Program

The Federal Bonding Program is unique in that it offers free fidelity bonds to employers who hire at-risk job seekers. These bonds are provided exclusively by Travelers Casualty and Surety Company of America. Key benefits include:

  • No bond approval processing: Local staff can instantly issue bonds to employers.
  • No paperwork for employers: Employers do not need to sign any documents to obtain the bond.
  • No follow-up or termination actions: Once issued, the bond requires no further action.
  • No deductible: If employee dishonesty occurs, there is no deductible in the bond insurance amount.

The Federal Bonding Program is the only program in the U.S. that provides these services, making it a crucial tool for helping at-risk job applicants secure employment.

In the next section, we’ll explore how fidelity bonds benefit both employers and employees, particularly in terms of protection and job opportunities.

How Fidelity Bonds Benefit Employers and Employees

Employer Protection

Fidelity bonds are essential for protecting businesses from financial losses due to employee dishonesty. According to a 2022 report from the Association of Certified Fraud Examiners, small businesses face a median loss of $150,000 due to occupational fraud. This is higher than the $138,000 median loss for larger businesses.

Fidelity bonds cover various fraudulent acts, such as:

  • Embezzlement
  • Theft of property
  • Forgery
  • Illegal electronic funds transfer

By having a fidelity bond policy, employers can safeguard their assets and maintain financial stability even when faced with dishonest employees.

Employee Opportunities

Fidelity bonds don’t just protect employers; they also create opportunities for employees. For example, businesses may be hesitant to hire at-risk applicants—like ex-offenders or individuals with poor credit histories—due to concerns about potential dishonesty. However, a fidelity bond provides an incentive for employers to take a chance on these individuals.

At-Risk Applicants

The Federal Bonding Program offers fidelity bonds specifically designed to help at-risk applicants secure employment. This program covers:

  • Ex-offenders
  • Recovering substance abusers
  • Welfare recipients
  • Economically disadvantaged youth and adults
  • Individuals dishonorably discharged from the military

These bonds range from $5,000 to $25,000 in coverage for a six-month period and require no paperwork from the employer. This makes it easier for businesses to hire individuals who might otherwise struggle to find work.

Job Placement

Fidelity bonds play a crucial role in job placement programs. They offer a guarantee of worker honesty, which can be a significant selling point for job applicants. Bonding services have no age requirements other than legal working age and can cover any job in any state.

This means that even the hardest-to-place job applicants can find work, gain experience, and eventually become commercially bondable. This opens up more job opportunities and helps break the cycle of unemployment for many at-risk individuals.

Frequently Asked Questions about Fidelity Bond Policies

What is the difference between a fidelity bond and a crime policy?

A fidelity bond is specifically designed to protect businesses from losses due to employee dishonesty, such as theft, fraud, or embezzlement. Think of it as a shield against internal risks. On the other hand, a crime policy provides broader coverage. It not only includes protection against employee dishonesty but also covers external crimes like robbery, burglary, and forgery.

For example, if an employee embezzles funds, a fidelity bond would cover that loss. However, if a thief breaks into your office and steals cash, a crime policy would be the one to cover that incident.

How long do fidelity bonds remain in effect?

The duration of fidelity bonds can vary. Typically, these bonds are issued for a period of six months to a year. For instance, the fidelity bonding service offered by Workforce Solutions provides coverage for six months initially. After this period, the employer can purchase a transfer bond for another six months if the insurance company agrees.

It’s also worth noting that some fidelity bonds can be renewed annually, ensuring continuous protection as long as the premiums are paid.

What is the difference between a fidelity bond and fiduciary insurance?

A fidelity bond and fiduciary insurance serve different purposes. A fidelity bond protects a business from losses caused by dishonest employees. In contrast, fiduciary insurance is designed to protect against claims of mismanagement of employee benefit plans, such as those covered under the Employee Retirement Income Security Act (ERISA).

For example, if an employee steals from the company, a fidelity bond covers the loss. However, if a company executive is accused of mismanaging an employee retirement plan, fiduciary insurance would step in to cover legal costs and any resulting settlements.

Understanding these differences can help businesses choose the right type of coverage for their specific needs.


At Surety Bonds Co, we understand that protecting your business from potential financial losses is crucial. A fidelity bond policy is a key component in safeguarding your company from dishonest acts committed by employees. Whether you’re a small business or a large corporation, having this policy in place is a smart investment.

Fidelity bonds offer peace of mind by covering various forms of employee dishonesty, such as theft, embezzlement, and fraud. This not only protects your financial assets but also helps in building trust with your clients, showcasing your commitment to ethical practices and financial responsibility.

Our goal at Surety Bonds Co is to make the process of securing a fidelity bond as straightforward and stress-free as possible. We offer instant online quotes, immediate approval, and the ability to download and print bonds within minutes. This ensures that you can focus on what you do best—running your business—while we take care of your bonding needs.

For more information on how you can protect your business with a fidelity bond, visit our Surety Bond service page. We’re here to serve you and ensure your business continues to operate with integrity and trust.

A fidelity bond is more than just a legal requirement or a form of business insurance. It is a testament to your business’s integrity, showcasing your commitment to ethical practices and financial responsibility.

Contact us today to learn more about how we can help you secure the right fidelity bond policy for your needs.

Fidelity Bond Policies: What They Cover and Why You Need One

Fidelity Bond Policies: What They Cover and Why You Need One

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