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Fidelity Bond or Employee Dishonesty / Commercial Dishonesty Bond

Do you plan on working for clients in the financial or banking sector? If so, you may need a certain type of insurance known as a Fidelity Bond in order to land a contract. A Fidelity Bond is essentially a voucher that says you and your team can be trusted around valuable goods – including money.

What is a Fidelity Bond?

A Third-Party Fidelity Bond (also called a Commercial Dishonesty Bond or Employee Dishonesty Bond) is designed to insure your business in the event that one of your employees or contractors…

Steals property, money, or other assets while on a client’s premises.

Illegally transfers funds by accessing a client’s secure systems remotely.

If this does happen, the fidelity bond can grant you the funds to compensate the client for their loss.

When Do I Need a Third-Party Fidelity Bond?

While most IT consultants and businesses don’t need a Fidelity Bond, certain clients will request that you carry this coverage. And they won’t be subtle about it: if they want you to have a Fidelity Bond, they’ll let you know. Typically, clients who request that you have a Fidelity Bond are those whose projects will give you and your team access to large sums of money, expensive equipment, or other particularly valuable items.

Obviously, you want to hire trustworthy employees and contractors, but you can’t control their actions. And if they do steal something, the responsibility to compensate the client falls on you. Luckily, Fidelity Bonds are unlike most other business insurance policies in that they explicitly cover intentional wrongful acts.

Nearly every other type of business insurance excludes fraud, wrongful acts, and criminal activity from coverage. One reason you might need a Fidelity Bond, in fact, is that theft by one of your employees wouldn’t be covered by your General Liability Insurance.

Note that there are two types of fidelity bonds:

  • First-Party Fidelity Bonds: This type covers your business property and assets in the event that one of your employees steals it. Your regular Property Insurance policy won’t cover theft by your own employees. A client won’t ask you to carry a first-party bond; if you’re interested in this type of coverage, you’ll have to decide with help from your agent whether it makes sense.
  • Third-Party Fidelity Bonds: This is the type most IT professionals are likely to need and the one that your clients are likely to request. It offers coverage if your employees steal from your clients.