Fidelity Bond Guide

A fidelity bond, sometimes called employee dishonesty insurance, protects your business from financial losses caused by fraudulent or dishonest acts committed by employees. Unlike most surety bonds—which are designed to protect third parties—fidelity bonds are a first-party protection that shields you, the business owner.

These losses can include:

• Theft of money, securities, or inventory
• Forgery or alteration of checks or financial documents
• Embezzlement or fraudulent wire transfers
• Unauthorized use of customer accounts or proprietary data

Fidelity bonds are especially important in industries where employees handle cash, inventory, or sensitive data—or where your reputation depends on trust.

They’re often required by law (such as ERISA plans) or by contract (e.g. janitorial or IT services at client sites).

Fidelity bonds aren’t just for large corporations—they’re essential for any business where employees have access to cash, financial accounts, sensitive data, or client property. You may need one because it’s:

Legally Required

If your business manages employee benefit plans, such as a 401(k), an ERISA bond is mandated by federal law to protect plan participants from fraud or misuse of funds by fiduciaries.

Contractually Required

Service providers—like cleaning companies, IT contractors, and home healthcare agencies—often need a business service bond to win contracts that involve work on client property.

Operationally Prudent

Even without a formal requirement, many companies choose to get a standard employee dishonesty bond to reduce risk and increase trust. This is common in:

• Accounting and payroll firms
• Medical and dental offices
• Retail businesses
• Logistics and warehousing
   

The bottom line: if employee dishonesty could cost you or your clients money, a fidelity bond may be critical protection.

Fidelity bonds come in several forms, each offering protection against specific types of employee dishonesty or misconduct. Choosing the right bond depends on your industry, risk exposure, and any legal or client obligations.

Employee Dishonesty Bond (First-Party Fidelity Bond)

Protects businesses from direct losses caused by employees who commit theft, forgery, embezzlement, or other dishonest acts.

Best for: Retailers, professional offices, service businesses — especially those handling cash or sensitive data internally.

Business Service Bond (Third-Party Fidelity Bond)

Covers losses suffered by a customer if your employee commits theft or fraud while working at the client’s premises. Often required by companies in the service industry.

Best for: Home healthcare providers, contractors, IT service firms, pest control, moving companies.

Janitorial & Cleaning Bond

A specialized form of business service bond tailored for cleaning and maintenance companies. It reassures clients that they’ll be protected if your staff steals or damages property while on the job.

Best for: Commercial and residential cleaning businesses, janitorial crews, maid services, custodial contractors.

Financial Institution Bond

Designed for banks, credit unions, and investment firms, these bonds offer broader protection against internal fraud, forgery, computer fraud, wire transfer fraud, and more. Coverage often exceeds standard employee dishonesty protections and may include third-party fraud.

Best for: Financial institutions and other regulated entities that handle large volumes of transactions or client assets.

ERISA Bond

Required under federal law for anyone managing employee benefit plans like 401(k)s. It protects plan participants from losses due to fraud or dishonesty by fiduciaries.

Key details:

• Minimum coverage: 10% of plan assets
• Required maximum: $500,000 ($1M if plan holds employer securities)
• Required by the Department of Labor
   

Some businesses may need multiple bond types depending on their operations. For example, a financial advisor who also manages retirement plans may carry both a Financial Institution Bond and an ERISA Bond.

Fidelity bonds function as a financial safety net for employers. When an employee commits a covered dishonest act—such as theft, fraud, or embezzlement—the bond helps reimburse the business for the resulting financial loss.

The Claims Process

1. Discovery: The employer discovers a loss resulting from an employee’s dishonest act.
2. Notification: The business notifies the surety bond provider and files a formal claim.
3. Investigation: The surety investigates the details of the loss, including verifying the dishonest conduct and the amount claimed.
4. Payout: If the claim is valid, the surety pays the employer for the covered loss up to the bond’s limit.
5. Recovery: The surety may then seek to recover the funds directly from the employee responsible (subrogation).
    

Who Is Protected?

• First-party bonds protect the employer from internal losses.
• Third-party bonds protect the employer’s clients from dishonest acts committed by the company’s employees.
• ERISA bonds protect employee benefit plans and participants from fiduciary misconduct.
   

Is It a Type of Insurance?

Yes—but with a key difference. A fidelity bond is technically a type of insurance, but it functions more like a hybrid of insurance and surety. The insured (employer) is protected from losses, but unlike traditional insurance, the surety can pursue reimbursement from the employee who caused the loss.

Fidelity bond pricing depends on several factors, but premiums are generally affordable for most businesses—especially considering the protection they offer.

Common Pricing Ranges

• Standard employee dishonesty bonds: Usually cost 0.5% to 2% of the total bond amount annually.
• Third-party bonds: Often start as low as $100 per year depending on coverage limits and employee count.
• ERISA bonds: Flat-rate premiums, typically around $100–$200 per year for minimum required coverage.
• High-risk industries (e.g., financial institutions or businesses with prior claims): May see rates up to 5%.
   

Factors That Affect Cost

• Bond amount (coverage limit): Higher limits = higher premiums.
• Number of employees covered: More employees = increased risk = higher premium.
• Industry type and risk exposure: Sectors handling cash, securities, or financial accounts typically pay more.
• Claims history: Prior losses or bond claims can result in surcharges.
• Financial strength of the business: Underwriters may review credit and financials.
   

Is a Fidelity Bond a One-Time Fee?

No. Most fidelity bonds must be renewed annually, and premiums are due each year to maintain coverage. Some policies allow for multi-year discounts.

Fidelity bonds protect businesses from financial losses caused by employee dishonesty, but what that includes can vary depending on the bond type and policy language.

Covered Acts

Most fidelity bonds cover the following types of fraudulent or dishonest behavior:

• Theft or embezzlement of money, securities, or property
• Forgery or alteration of financial documents
• Fraudulent electronic funds transfers
• Misappropriation of client assets (particularly in third-party bonds)
• Falsifying records to conceal losses or wrongdoing
   

Who Is Covered?

• First-party bonds: Cover losses caused by your own employees.
• Third-party bonds: Cover client losses caused by your employees while working at the client’s location.
• ERISA bonds: Cover fiduciaries and others who manage employee benefit plans.
   

What’s Typically Not Covered

Fidelity bonds do not cover:

• Errors or omissions (separate E&O insurance may be needed)
• Bodily injury or property damage
• Losses caused by non-employees (e.g., independent contractors)
• Losses discovered after a set period (often 1 year post-employment)
   

Understanding the scope and limitations of coverage is critical for choosing the right bond and ensuring you’re fully protected.

Obtaining a fidelity bond is a relatively simple process, but it helps to understand the key steps and requirements upfront.

1. Determine the Type of Bond You Need

Start by identifying which type of fidelity bond applies to your business:

• First-party bond: Protects against internal employee theft
• Third-party bond (Business Service Bond): Needed if your employees work in clients’ homes or offices
• ERISA bond: Required for those managing employee benefit plans (e.g., 401(k)s)
   

2. Choose a Reputable Bond Provider

Work with a licensed surety agency that understands your industry. Companies like JW Surety Bonds offer a wide range of fidelity bond products and can guide you through state-specific or federal requirements.

3. Complete a Short Application

You’ll need to provide:

• Business name and contact info
• Number of employees
• Desired bond amount
• Type of coverage needed
• Financial documentation (in some cases)
   

4. Receive a Quote

Premiums vary based on:

• The level of coverage
• The number of employees
• Your industry’s risk level
• Your business and credit history (especially for higher bond amounts)
   

Low-risk businesses may pay as little as 0.5%–2% of the bond amount annually.

5. Get Approved and Issued

Once approved, the surety provider will issue your bond. For ERISA bonds, the provider may also file documentation as required by federal law.

6. Keep It Current

Fidelity bonds are typically active for one year and must be renewed. Your bond agent will remind you ahead of time.

Yes — you can still qualify for a fidelity bond even with a less-than-perfect credit score.

JW Surety’s Bad Credit Options

JW Surety Bonds works with applicants who have credit issues by leveraging exclusive programs tailored for higher-risk profiles. These programs make it possible to get bonded without needing to provide collateral.

Impact on Rates

If you have bad credit, you may pay a higher premium — typically between 2% and 5% of the bond amount, compared to 0.5%–2% for applicants with good credit. Factors like bankruptcies, tax liens, or prior bond claims can influence your rate.

Tips to Qualify

To improve your chances and reduce your rate:

• Provide detailed financials or proof of business assets
• Avoid recent delinquencies or unresolved collections
• Work with an experienced bond agent who can shop multiple markets

Fidelity bonds cover specific dishonest acts — but they don’t cover everything.

Covered Events

Most fidelity bonds protect against:

• Employee theft of money or property
• Embezzlement or misappropriation of funds
• Forgery or alteration of financial documents
   

These claims typically arise when a trusted employee abuses access to company accounts or assets.

What’s Not Covered

Fidelity bonds usually do not cover:

• Losses caused by company owners or executives (unless specially endorsed)
• Unproven suspicions of dishonesty
• Cybercrime, unless specifically included in the bond
• Acts committed after the employee is known to be dishonest
   

What to Do if You Need to File a Claim

1. Report the loss immediately to your bond provider
2. Gather evidence such as audit reports or police documentation
3. Cooperate with the investigation
4. Await resolution — if valid, the surety will reimburse you up to the bond limit

With more than 20 years of industry experience, JW Surety Bonds is a top provider of fidelity and ERISA bonds nationwide.

Specialized Expertise

Our team understands the specific requirements for:

• First- and third-party fidelity bonds
• ERISA compliance for retirement plan fiduciaries
• Industry-specific bonding needs
   

Competitive Rates & Volume Discounts

We leverage high-volume relationships with underwriters to provide:

• Fast quotes
• Flexible terms
• Lower rates for bundled coverage or multi-bond purchases
   

Trusted by Thousands

JW Surety has helped thousands of businesses secure the protection they need — from startups to established financial institutions.