Fidelity bonds cost

Small business owners pay an average of about $1,000 annually for a fidelity bond, though premiums vary widely depending on the policy limits and deductible you choose, the type of bond, and other factors.

A fidelity bond operates more like insurance than a bond, despite its name. It's a type of commercial crime insurance that offers financial protection if one of your employees commits theft or fraud against a client or your business. As with surety bonds, a client might require you to buy a fidelity bond before they'll sign a contract with your business.

Fidelity bond limits range from as low as $5,000 to $10 million, depending on the scope of business, your liabilities, and contractual requirements. Common types of fidelity bonds include employee dishonesty bonds, janitorial services bonds, and business services bonds. These bonds all cover employee theft, but vary in who and what they protect.

The U.S. Department of Labor requires Employee Retirement Income Security Act (ERISA) bonds for small businesses that provide a 401(k) plan. Also called fiduciary bonds, ERISA fidelity bonds protect employee benefit plans from theft and fraud committed by a plan administrator, and the premium depends on the value of the retirement plan’s assets.

A variety of factors can impact your fidelity bond costs.

Your insurance provider will look at:

• Coverage limits
• Deductible
• Number of employees
• Industry risks
• Financial history and credit score
• Type of bond

The cost of a fidelity bond mostly depends on the limits you choose, which are the maximum amounts you can receive in the event of a claim. You might also see this called the total bond amount.

A surety company would charge more for a fidelity bond with higher limits, but the bond would cover bigger financial losses resulting from theft, embezzlement, and other dishonest acts committed by employees. Though you can often choose the amount of coverage you want, clients and other third parties may mandate a minimum bond amount.

Not every bond has a deductible, but it can impact the premium for bonds of $5 million or more. For small, minimum-premium bonds, it won't affect the price.

Policyholders must pay the deductible out-of-pocket before their insurance company will cover a claim.

Most small business owners (73%) choose a deductible of $10,000. Other common choices for Insureon's customers are $25,000 and $50,000.

It’s a simple numbers game: if your business has many employees, then be prepared to pay more for your coverage. The more workers you have, the greater the risk of an employee engaging in a dishonest act.

For example, a small nonprofit with a few employees will likely pay less for their bond than a larger company.

As with other types of coverage, it may be possible to lower your rates through a loss control program focused on preventing theft and fraud at your business.

If your business operates in a high-risk industry, you’ll need to pay more for a fidelity bond. An industry is considered high risk when it routinely manages large amounts of money that belong to clients or other third parties.

Here are some of the top industries considered high risk by surety companies:

• Technology
• Financial services
• Healthcare

A small, low-risk consulting business could expect low rates, while you'd see higher rates for an investment firm, home healthcare service, or other enterprise where a dishonest employee could cause tremendous financial harm.

As part of the bonding process, the surety company's underwriters will look at the applicant's credit report and financial statements to determine how much to charge.

If you have poor credit, you can probably still get a bond. However, the cost will be higher. Having a clean credit history helps keep costs low, as it shows the bonding company that you have financial stability and reliability, resulting in a smaller likelihood of future claims.

The type of bond you purchase impacts the rate you'll pay. Different bond types cover different risks, such as misappropriation of company funds or forgery of a client’s signature on a check.

You might need an industry-specific bond to sign contracts with clients, or an ERISA bond if your company has a 401(k) plan for its employees. ERISA bonds are less expensive than other kinds of fidelity bonds, as they protect only the plan assets, not those of clients or other third parties.

ERISA bonds are often required by law. A similar type of insurance, fiduciary liability insurance, is a voluntary type of coverage that protects plan administrators against claims alleging mismanagement of funds or other fiduciary breaches.

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