Fidelity Bond
Insurance coverage that protects employers from financial losses caused by dishonest or fraudulent acts committed by their employees. It covers theft of money, securities, or property by employees who have violated their position of trust.
Example
“The bank's fidelity bond covered the $500,000 stolen by a branch manager who had been embezzling customer deposits over two years.”
Memory Tip
Fidelity Bond = 'Faithful employees Bond' - it pays when that bond of trust is broken by employee theft.
Why It Matters
Fidelity bonds protect businesses from insider threats, which account for a significant portion of workplace theft and fraud. For small businesses especially, a single case of employee embezzlement could be financially devastating without this protection.
Common Misconception
Many business owners assume their general liability insurance covers employee theft, but it doesn't. Fidelity bonds are specifically designed for employee dishonesty, while general liability covers third-party claims. Additionally, these bonds don't cover simple mistakes or poor performance - only intentional dishonest acts.
In Practice
A retail store with 50 employees purchases a $250,000 fidelity bond for an annual premium of $1,200. When their bookkeeper is discovered to have stolen $80,000 over 18 months by writing fake vendor checks, the bond covers the full loss. The insurance company pays the $80,000 claim and then pursues legal action against the employee for reimbursement. Without the bond, the store owner would have had to absorb the entire $80,000 loss, potentially forcing the business to close.
Etymology
The term combines 'fidelity' meaning faithfulness or loyalty, with 'bond' referring to a financial guarantee, dating back to early commercial insurance practices in the 19th century.
Common Misspellings
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