Fidelity bonds provide reimbursement if one of your employees commits fraud, theft, or forgery against a client or your business. They are often required by client contracts.
When do small businesses need fidelity bonds?
Any business with employees who handle sensitive financial or personal information could benefit from a fidelity bond. Fidelity insurance provides coverage when an employee:
Embezzles company funds
Forges a signature
Steals from your company or a client
Fidelity bonds are not required by law. However, your clients might request fidelity bonds to protect their assets from your employees, especially if you work as an independent contractor in finance or banking.
For example, an IT consulting firm or a financial planner might need a fidelity bond to fulfill a client contract. It’s typically the contractor’s responsibility to secure fidelity insurance coverage.
You may want to purchase a fidelity bond if employees can access:
Your company or client finances
Social Security numbers
Credit card numbers
Other financial or personal information
First-party versus third-party fidelity bonds
First-party fidelity bonds protect your business
First-party fidelity bonds protect your own small business against criminal acts by your employees, including embezzlement. The more access your employees have to your business’s finances, the greater the risk. A first-party fidelity bond can provide financial reimbursement after an employee steals from your company.
Third-party fidelity bonds protect your clients
A third-party fidelity bond could reimburse your clients in the event that an employee misuses Social Security numbers, credit card numbers, or other financial or personal data. It’s commonly required in client contracts with consultants or independent contractors, especially in finance and banking.
Fidelity bond costs
Fidelity bonds are often needed to fulfill client contracts. Factors that affect the cost of a fidelity bond include:
Amount of coverage, or policy limit
Personal and financial information handled by your company
Number of employees with access to sensitive information