The cost of a fidelity bond depends primarily on the size of the bond. The amount of sensitive information handled by your company and the number of employees who can access it may also affect the cost.
Fidelity bonds, which are a type of surety bond, offer financial coverage if one of your employees commits fraud, theft, or forgery against a client or your business. Some clients may have bond requirements in order to sign a contract with them.
The amount of coverage chosen for a fidelity bond varies widely, ranging from as low as $5,000 to $10 million, based on the scope of your business and your liabilities.
Small businesses that provide a 401(k) plan may need an Employee Retirement Income Security Act (ERISA) bond. Also called a fiduciary bond, an ERISA fidelity bond protects employee benefit plans from theft and fraud.
For an ERISA bond, the cost depends on the value of the retirement plan’s assets.
The cost of a fidelity bond is usually a small percentage of the bond's total amount of coverage.
For example, a bonding company might decide to charge you 1% of the total bond amount. That would mean a $2,000 bond would cost $20, and a $10,000 bond would cost $100 annually. This is why the coverage size of the bond is the biggest factor in determining its cost.
A surety company would charge more for a larger bond sum, but the fidelity bond would also provide greater coverage for employee theft, embezzlement, and other dishonest acts by employees that cause financial loss.
In addition to bond size, some additional factors will determine the cost of a fidelity bond.
Your insurance provider will look at your industry, credit history, and the amount of sensitive information your company handles. They'll also factor in the number of employees who can access the data.
In addition, If your fidelity bond has a provision for a deductible, that will also influence your fidelity bond cost.
A fidelity bond is more similar to a line of credit than an insurance policy. The money must be paid back if you use it. That's why your personal credit score is important.
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 they can count on you to pay back the amount if needed.
The type and volume of data you work with directly affects fidelity bond insurance costs.
If you’re storing large volumes of sensitive customer data like personal information, credit card numbers, Social Security numbers, or medical records, your fidelity bond will cost more as you are at a greater risk for employee fraud or theft.
It’s a simple numbers game: If several employees in your business have access to sensitive data, then be prepared to pay more for your coverage. The more access points, the greater the risk of an employee engaging in a dishonest act.
If possible, limit data access to keep insurance costs down.
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Insurance premiums vary based on the policies a business buys. See our small business insurance cost overview or explore costs for a specific type of business insurance policy.