What Type of Insurance Is Fidelity Insurance?

Fidelity insurance is a specialized business coverage protecting organizations from financial losses. It addresses losses caused by dishonest acts committed by employees. This coverage serves as a crucial component of a business’s overall risk management strategy. The policy aims to mitigate the financial impact of various forms of misconduct.

Understanding Fidelity Insurance

Fidelity insurance, also known as a fidelity bond or employee dishonesty bond, shields employers from financial losses due to fraudulent or dishonest employee actions. This coverage provides a financial safety net against internal risks like theft, embezzlement, and other forms of fraud. While external fraud is a concern, internal dishonesty is often more prevalent, accounting for a significant portion of related claims.

The primary purpose of fidelity insurance is to protect a company’s assets from employees who misuse their position for personal gain. This includes monetary losses and the theft of physical property. Companies of all sizes can be vulnerable to such acts, with smaller businesses sometimes facing higher susceptibility due to fewer internal controls. Acquiring fidelity insurance is a proactive measure that helps businesses recover from severe financial setbacks caused by a breach of trust.

What Fidelity Insurance Covers

Fidelity insurance policies cover financial losses from dishonest acts. Employee theft protects against the loss of money, securities, or other property due to an employee’s dishonest conduct. This includes direct theft of cash or inventory, or complex schemes involving the misuse of company funds. For example, an employee might make unauthorized transfers from a company account to a personal one, leading to direct financial loss.

Forgery or alteration addresses losses when an employee unlawfully manipulates financial documents. This might involve forging checks, falsifying invoices, or altering electronic records to misappropriate funds. Losses from fraud, including computer fraud, are also covered. This protection extends to scenarios where an employee uses computer systems to perpetrate fraud, such as unauthorized data manipulation or fraudulent electronic money transfers.

Fidelity insurance also covers losses related to funds transfer fraud, occurring when fraudulent instructions lead to the transfer of company funds. Policies reimburse the business for direct financial damages caused by these types of misconduct. The employee’s action intends to cause financial loss and obtain a benefit for themselves or another party.

Fidelity Insurance Versus Other Business Coverages

Fidelity insurance occupies a distinct space, focusing on losses from internal or specified external dishonesty. It differs from general liability insurance, which covers third-party claims of bodily injury or property damage. General liability policies protect a business if, for instance, a customer slips and falls on its premises, but they do not cover losses from employee theft.

Professional liability insurance, also known as Errors & Omissions (E&O) insurance, covers claims arising from negligence or mistakes in professional services provided to clients. While it protects against financial losses due to professional errors, it does not extend to intentional dishonest acts by employees. E&O insurance is designed for issues related to service quality or advice, not for internal criminal behavior.

Directors and Officers (D&O) liability insurance protects the personal assets of a company’s directors and officers against claims of wrongful acts in their management capacity. These wrongful acts involve breaches of fiduciary duty or mismanagement, not direct theft or fraud by an employee. D&O insurance addresses leadership decisions and their consequences, whereas fidelity insurance specifically targets the financial impact of employee dishonesty. While both are important for a comprehensive risk management strategy, their scopes are separate and address different exposures.