What is a Fidelity Bond? – SFAA (2024)

Although fidelity bonds were originally written as three-party surety bonds guaranteeing the honesty of an employee, today’s fidelity bonds are two party insurance policies. In addition to being referred to as a fidelity bond, Employee Dishonesty Insurance is sometimes also referred to as:

• Financial Institution Bond
• Commercial Crime Policy
• Employee Dishonesty Bond
• Crime Insurance Coverage

Each year, businesses lose millions of dollars to employee theft, with some cases resulting in bankruptcy. Every business with employees, regardless of size or industry, should purchase a fidelity bond to protect it from fraud. According to the U.S. Chamber of Commerce:

• Three out of four employees admit to stealing from their employers at least once.
• One of every three business failures is the direct result of employee theft.
• Employee dishonesty losses incurred by American business total more than $50 billion annually.

First and foremost, all businesses should put into place policies and procedures designed to help protect the company from financial loss caused by dishonest employees. Examples of these preventive measures include:

• Pre-hiring background checks of prospective employees
• Countersignature requirements for checks
• Reconciliation of bank accounts by someone other than the employee that handles deposits and withdrawals.
• Internal audits/review of all financial records and inventory
• Annual audits using an independent accountant
• Employee Dishonesty Insurance (Fidelity Bond)

Despite a business’s best efforts at prevention, losses can still occur. Incorporating Employee Dishonesty Insurance (Fidelity Bonds) into the company’s risk management practices offers a substantial hedge against financial losses caused by employee theft. These policies are especially important for small businesses, which can be financially devastated by the actions of a single dishonest employee.

Generally speaking, within the marketplace, there are two general types of fidelity insurance available today:

• Financial institution bonds (offered to financial institutions such as banks, stockbrokers, insurance companies etc.)
• Commercial crime insurance policies (offered to non-financial commercial entities)

Within each category there are different policy forms designed for specific types of institutions. These include:

• Financial Institution Bonds, Standard Form No. 14 for Brokers/Dealers
• Financial Institution Bonds, Standard Form No. 15 for Mortgage Bankers and Finance Companies
• Credit Union Blanket Bond, Standard Form No. 23 for Credit Unions
• Financial Institution Bonds, Standard Form No. 24 for Commercial Banks, Savings Banks and Savings and Loan Associations
• Financial Institution Bonds, Standard Form No. 25 for Insurance Companies^[
• Commercial Crime Insurance Policy
• Commercial Crime Insurance Policy for Public Entities