fidelity bond

A fidelity bond is a type of insurance that protects businesses against financial losses caused by the dishonest actions of their employees. Unlike standard theft insurance, fidelity bonds cover losses incurred by individuals in positions of trust.1

A bond involves three parties: the principal (the bonded individual), the obligee (the protected party, usually an employer), and the surety (the entity guaranteeing reimbursement for losses). Fidelity bonds specifically cover employee dishonesty, while surety bonds can also cover an employee's inability to perform agreed-upon work. These bonds are typically continuous and cover a group of employees rather than naming individuals. The bond has a set penalty, which is the maximum amount payable for a single loss and does not increase over time. A discovery period limits the time to report losses after the bond is discontinued, and a salvage clause outlines how recovered funds are shared between the surety and the obligee.1