Understanding Fidelity Bonds

Fidelity Bonds
Fidelity Bonds

As a business owner, there are many decisions you have to make every single day, and each one of them will significantly impact your business’ success in both the short and long term. While hiring valuable employees is crucial, what do you do when one of your ideal candidate’s background is questionable, and the person is one you are looking to delegate critical fiduciary responsibilities to? One way to ensure that you have peace of mind once you have hired them is by purchasing fidelity bonds.

What Is A Fidelity Bond?

Fidelity bonds, also known as fidelity insurance or fidelity guaranty, are a type of insurance that is bought by an employer to protect himself/herself against losses (like theft or embezzlement by employees) that are generally not covered under normal burglary or theft policies. This bond can either be for specific employees on a more individual basis or for all employees of a company (this type of bind is known as a blanket bond).

Often, it is the insurer who sets the guidelines to be followed by the firm being insured and should be followed in the insured company’s hiring practices. Protection continues as long as the duties of those employees that are covered remain the same – unless it is arranged otherwise. Businesses like security firms, cash carriers, and brokerages are required by law to take up fidelity bond insurance.

The Difference Between Fidelity Bonds And Surety

When applying for these type of cover, you might notice that it is often grouped together with surety. While both of them work together to provide the insured some peace of mind, the two differ a bit in how they are used and how they work.

Fidelity bond covers are meant to protect employers and are usually two-party agreements. Surety bonds on the other hand are three-party agreements designed to provide some sort of intervention in the even a contract cannot be fulfilled. With surety bonds, the first party is usually the company offering surety and is the one that reimburses a project owner (who is the second party) if the contract’s obligations were not met by the third party (who is the contractor). It is important to note that independent contractors do not qualify for a fidelity bond but are generally eligible for surety bonds.

Applying For Fidelity Bond Policies

Business owners can apply for fidelity bond policies if they are planning to hire high risk or fiduciary employees. Some states require businesses to acquire Fidelity bonds because of the nature of their work. If the business you run is of a nature that will require you getting this type of insurance cover, consider checking your local laws to know what the requirements are. While employers are the ones who often purchase these policies, the interesting thing is that employees can purchase them too. However, self-employed persons do not qualify.


Fidelity bond insurance costs are mostly determined by the type and nature of business, the size of the business’ workforce, and the type of customers it serves. Other factors that will determine the cost of a fidelity bond policy include the cover’s deductibles and coverage amount.

If your business handles significant amounts of client money on a regular basis and you doubt the trustworthiness of some of your employees, purchasing fidelity bond insurance is one of the best options you have. For more information on fidelity bonds, consider contacting an independent insurance agent or company today.