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What is a Fidelity Bond?
Sometimes referred to as 'honesty bonds', fidelity bonds protect an organization in addition as the clients of that agency, from the potentially devastating losses that might occur if a strategically-placed employee were to steal from the agency, or commit damaging criminal acts such as forgery, which could be harmful to an organization's reputation. In the majority of cases, fidelity bonds are optional hedges against such criminal activity, although government regulations do require assured businesses to have such safeguards in place, so that buyers don't lose the complete lot whilst an organization experiences a prime loss.
How do Fidelity Bonds Work?
Then too, the terms of the fidelity bond might only stay in effect as long as specific employees remain in specific positions. This too is understandable, because in the case of scheduled fidelity bonds (which duvet specific employees in high-profile positions), employees with greater access to assets that are potentially exploitable are the ones that are being insured against. If one honest employee is hired as an organization accountant, but is replaced by an individual who turns out to be less honest, it's simple to peer why the coverage is probably voided.
If you may have heard the term before but aren't quite sure what it is, a fantastic fidelity bond definition would reference the fact that it's a form of insurance which an employer can buy to protect a business against employee theft, embezzlement, and other losses which aren't normally covered by traditional insurance. This can be in the form of blanket insurance, which covers all employees equally, or insurance which applies to specific employees in positions where access is greater to agency assets, e.g. bank accounts, intellectual property, etc.
Fidelity bonds work in loads the same way as insurance does, in that under normal circumstances, they are just in the background having no impact on daily operations. Only whilst assured events occur does the fidelity bond come into play, just as with an insurance policy. Of course, in the case of an insurance policy, it's primarily the death of an insured person that's the triggering event that turns on the policy, and causes a claim to be filed for reimbursement. With a fidelity bond, the triggering event happens whilst plenty of variety of loss is sustained by an organization, that's directly associated with a criminal act by an employee, such as embezzlement.
Parties Involved in a Fidelity Bond
The parties involved in a fidelity bond are the employer, the employees, and a financing agency which sells the fidelity bond to the employer. Since the finance agency, or insurance agency, stands to be liable for the quantity of that fidelity bond if a claim is made, they occasionally wish to set suggestions for the employer's hiring practices. Employees and their actions are of course, the point of interest of the bond in the 1st place, so it's only natural that an insurance agency would wish to protect itself against undue exposure to talents criminal acts.
