Fidelity Bonds: What They Are, How to Get One
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Fidelity bonds are insurance policies that protect a business’s finances in case an employee steals from the business or commits fraud. Fidelity bonds are also known as employee dishonesty insurance.
You can buy a fidelity bond on its own or as part of a commercial crime insurance policy. Consider purchasing this coverage if your employees routinely handle money or valuable assets that belong to your business or your customers.
What are fidelity bonds?
Fidelity bonds are a type of business insurance that protects your business finances if an employee steals money or property from your company or customers.
This coverage can pay out to make your business whole if an employee or group of employees commits theft on the job. It goes by a few different names, including “employee dishonesty insurance,” “fidelity bond” and “employee dishonesty bond.”
Despite the name, fidelity bonds are insurance policies, not bonds. Historically, fidelity bonds were similar to surety bonds, which are agreements among the business owner, their client and a third party promising that work will be completed. Today, fidelity bonds are structured like insurance policies. Some companies still use the term “fidelity bond," while others use "employee dishonesty insurance."
Does your business need a fidelity bond?
Fidelity bonds are important for businesses where lots of employees have access to your business finances or customers’ property. Consider purchasing this coverage in the following instances:
If your employees have access to your business finances: Nonprofits, medical offices, professional offices and other kinds of businesses where employees make financial transactions are all at risk of employee theft.
If your employees have access to customers’ money or assets: If your employees regularly enter customers’ homes or businesses, a fidelity bond can set you apart from your competitors because customers know their assets are protected. This may be important for janitorial and cleaning businesses, HVAC businesses, plumbing businesses and other in-home service providers.
If you need this type of protection, look for business service bonds or third-party fidelity bonds, which specifically protect a business’s customers from losses due to theft.
If you work as a contractor or consultant: Clients may request that you buy a fidelity bond before beginning work with them. In this case, you’ll also want a business service bond.
If you work in the financial services industry: You may need a specialized type of fidelity bond known as a financial institution bond, which protects financial institutions. If you’re a pension plan trustee, you’re also required by law to have an ERISA bond, which protects pension plan participants and their beneficiaries.
How to get a fidelity bond
You can get a fidelity bond on its own or as part of a commercial crime insurance policy. If your business faces risks like forgery, computer fraud, extortion and counterfeiting, opting for a broader commercial crime policy may make sense.
NerdWallet recommends getting business insurance quotes from multiple companies so you can compare coverage details, coverage limits and premium costs before choosing a policy. Start your search for fidelity bonds with these companies:
If you want employee dishonesty coverage as part of a business owner’s policy: Huckleberry offers employee dishonesty insurance as an add-on endorsement to a BOP for a flat fee. Read NerdWallet’s review of Huckleberry business insurance.
If you need a business service bond to protect customer assets: Nationwide sells business service bonds, which cover your customers’ losses if one of your employees commits theft or fraud on their premises, as well as employee dishonesty bonds and ERISA bonds. Read NerdWallet’s review of Nationwide business insurance.
If your primary concern is your company’s assets:
Travelers offers fidelity and crime insurance, which covers losses due to employee dishonesty, forgery, computer fraud and more. Read NerdWallet’s review of Travelers business insurance.
Liberty Mutual sells coverage for employee theft, forgery, computer fraud and counterfeit money, among other risks. Policies are provided by Ironshore, a Liberty Mutual subsidiary. Read NerdWallet’s review of Liberty Mutual business insurance.
You can also look into bonding companies, which specialize in products like surety and fidelity bonds. Merchants Bonding Company, for instance, was one of the 10 largest writers of fidelity and surety bonds by premium values in the first half of 2021, according to the Surety & Fidelity Association of America.
How much do fidelity bonds cost?
The cost of a fidelity bond depends on the size of the bond, which is the most the insurance company will pay out to cover a loss.
According to BondExchange, a wholesale insurance marketplace that helps insurance agents find policies for their customers, fidelity bonds insuring five or fewer employees can cost:
$100 per year for a $5,000 bond.
$167 per year for a $20,000 bond.
$257 per year for a $50,000 bond.
$359 per year for a $100,000 bond.