How to Get a Fidelity Bond for Your Business

A fidelity bond serves as a form of business protection, safeguarding an employer from financial losses that result from dishonest actions of employees, such as theft, forgery, or embezzlement. While often referred to as “bonds,” they function more like an insurance policy, where the business files a claim and is reimbursed for covered losses.

Businesses commonly seek fidelity bonds to mitigate financial risk, especially when employees handle money, valuable assets, or sensitive data. Specific scenarios necessitating a bond include operations in the service sector where employees work at client locations, or when employees regularly manage cash or proprietary information. Federal regulations, such as the Employee Retirement Income Security Act (ERISA), mandate fidelity bonds for plans that manage employee benefits like 401(k)s, ensuring protection for plan participants from misuse of funds by fiduciaries.

Information Required for a Fidelity Bond Application

Before applying for a fidelity bond, gather specific information about your business. Insurers require a comprehensive understanding of the applicant to assess risk and determine appropriate coverage. This includes detailed applicant information, financial data, and specifics regarding your employees and internal controls.

Applicant details include your business’s legal name, physical address, and established business structure, such as a sole proprietorship, partnership, or corporation. Providing the date your business was established and its industry classification helps the underwriter understand your operational context. For larger entities or those with multiple locations, a clear organizational chart may also be beneficial.

Financial information reflects your business’s financial health. While specific tax IDs are required, underwriters also review business financial statements, including balance sheets and income statements. For smaller businesses or those without extensive financial records, personal credit histories of owners or principals may be considered to evaluate financial responsibility.

When applying for a commercial fidelity bond, information regarding your employees is important. This includes the total number of employees, their roles, and any existing background check policies for new hires. Details about your internal controls, such as segregation of duties for financial transactions or oversight mechanisms, demonstrate efforts to prevent dishonest acts. These measures show the insurer your business actively manages potential risks.

Determining the appropriate type and amount of coverage is also part of this preparatory phase. Fidelity bonds come in various forms, such as commercial blanket bonds that cover all employees, or specific bonds like ERISA bonds for retirement plans. For ERISA bonds, coverage is at least 10% of the plan’s total assets, with a minimum bond amount of $1,000 and a maximum of $500,000. This maximum can increase to $1 million if the plan holds employer securities.

For other commercial bonds, the coverage amount is based on factors like employee count, industry risk profile, and the value of assets handled. Past claims related to employee theft or fraud within your business should also be disclosed, as this history influences the underwriting decision and potential premium costs.

The Fidelity Bond Application Process

Once all necessary information is compiled, the next stage involves applying for the fidelity bond. This process begins with identifying a suitable bond provider and submitting the application. The insurer then conducts an underwriting review, leading to the potential issuance of the bond.

Finding a provider can be done through various channels. Many businesses work with insurance brokers who specialize in commercial coverage, as they can help navigate options and secure competitive quotes. You can also directly approach surety companies that issue fidelity bonds, or utilize online platforms. For ERISA bonds, ensure the provider is listed on the Department of the Treasury’s Listing of Approved Sureties.

Submitting the application involves completing a detailed form, available online or as a paper document. This form requires the specific information gathered previously. Required signatures from authorized individuals within your business are necessary to finalize the submission. Some providers facilitate instant quoting and online submission, making the process efficient.

Upon submission, the application undergoes an underwriting review. The surety company assesses the risk presented by your business. This assessment includes conducting background checks on the business and its principals, as well as a thorough financial assessment. Underwriters may request additional information or clarification during this review. The time for underwriting varies, but many online applications can provide a certificate of insurance within 24 hours.

Upon approval, the fidelity bond is issued. You will receive the bond certificate and policy documents, which outline the terms, conditions, and coverage limits. Review these documents carefully to understand the scope of protection. Premium payments for fidelity bonds are often made annually, or in some cases, monthly or for multi-year terms, such as three-year agreements for ERISA bonds.

Managing Your Fidelity Bond

After securing a fidelity bond, ongoing management involves maintaining coverage, understanding renewal procedures, making necessary updates, and navigating the claims process. Adhering to the bond’s terms and conditions ensures continuous protection, including keeping accurate records of business operations and employee information.

Maintaining coverage means ensuring your business meets the requirements set by the bond provider. For instance, if your business has an ERISA bond, you must report the bond amount on your annual Form 5500 filing. The Department of Labor reviews these filings to confirm adequate coverage. Insufficient bonding or failure to report can lead to an audit or personal liability for fiduciaries.

Fidelity bonds typically have a defined term, requiring renewal. The renewal process may involve a re-evaluation by the surety company, reassessing your business’s risk profile. This could lead to premium adjustments based on changes in operations, employee count, or claims history. Renewing on time prevents lapses in coverage.

Changes to your business, such as shifts in ownership, modifications to the business structure, changes in employee numbers, or evolving coverage needs, should be communicated to your bond provider. Updating your bond ensures coverage remains appropriate and adequate for your current operations. This proactive communication helps prevent potential issues should a claim arise.

In the event of a covered loss, understand the process for filing a claim. Notify the surety company as soon as you become aware of a dishonest act by an employee. You will be required to provide clear evidence of the fraudulent or dishonest acts, including financial records, transaction lists, emails, or internal review reports. The surety company will then investigate the claim, communicating any additional information or documentation needed. The bond covers actual losses incurred, but not potential business loss or intangible damages.