Fidelity Bond
Insurance that protects a business from financial loss caused by employee dishonesty, theft, or fraud.
What is Fidelity Bond?
A fidelity bond is a type of insurance policy that protects an employer from financial losses resulting from dishonest or fraudulent acts committed by employees, such as theft of money, securities, or property. Unlike traditional bonds, fidelity bonds are not guarantees of performance to a third party — they are first-party insurance policies for the benefit of the business. Fidelity bonds are required by law for certain fiduciaries, including ERISA-covered employee benefit plan administrators (who must be bonded for at least 10% of plan assets up to $500,000). Banks, investment firms, and businesses handling cash or securities commonly carry fidelity bonds.
Example
A retail chain discovers that a store manager embezzled $200,000 in cash receipts over two years. The company's fidelity bond covers the full loss after a brief investigation and claim submission, and the insurer subrogates against the convicted employee to recover what it can. Without the bond, the loss would have reduced operating income directly.