How much do fidelity bonds cost?

Small businesses pay about $1,000 annually on average for a fidelity bond. Premiums vary based on the policy limits and deductible you choose, the bond type, and other factors.

Fidelity bonds, a type of surety bond, protect your small business against financial loss in the event of employee theft, embezzlement, forgery, or fraud. It's often required by clients in order to secure a contract.

Despite their name, fidelity bonds function more like insurance policies than traditional bonds. It is a form of commercial crime insurance that provides financial protection if one of your employees commits theft or fraud against a client or your business. It is frequently referred to as "employee dishonesty insurance."

Fidelity bond limits vary widely, ranging from $5,000 to more than $10 million. Your exact cost will be based on the size of bond you get, among several other factors.

Examples of fidelity bonds include employee dishonesty bonds, janitorial services bonds, and business service bonds. All of these bonds provide protection against employee theft, but vary in who and what they protect.

If you offer employee benefit plans, you will need an Employee Retirement Income Security Act (ERISA) bond. Also known as a fiduciary bond, an ERISA bond provides retirement plan and pension plan coverage against employee theft and fraud. Bond pricing is determined by the amount of assets handled by the fiduciary.

Here are the top factors that impact your fidelity bond costs:

• Coverage limits
• Deductible
• Number of employees
• Industry risks
• Financial health and credit score
• Type of bond

A fidelity bond's cost depends predominantly on the limits you choose. This limit is the maximum amount you can receive in the event of a claim. This is often referred to as the total bond amount.

A surety company will generally charge more for a fidelity bond with higher limits, but the bond would cover more substantial financial losses resulting from employee dishonesty, including theft and embezzlement.

Clients and other third parties may require a minimum bond amount, which will determine the size of the bond you select.

For small, minimum-premium bonds, you likely will not have a deductible. Bonds valued at less than $5 million generally do not have a deductible.

For bonds with a deductible, you must pay the deductible out of pocket before your insurance company will cover a claim.

73% of small business owners who purchase with TechInsurance select a $10,000 deductible. Other common choices for TechInsurance customers are $25,000 and $50,000.

If your business has many employees, you will likely pay more for your coverage. The more workers in your employ, the greater the risk of an employee engaging in a dishonest act.

For example, a small marketing consulting agency with a few employees will likely pay less for its bond than a larger company.

It may be possible to lower your rates through a risk management program focused on preventing theft and fraud at your business. If possible, limit data access to keep insurance costs down.

Operating in a high-risk industry will likely require you to pay more for a fidelity bond.

Industries are considered high risk when employees frequently manage large sums of client and third-party money.

Some of the top industries considered high risk by surety companies include:

• Technology: $117 per month
• Nonprofits: $44 per month

A low-risk, small design business could expect lower rates than a large occupational healthcare office or other enterprise where a dishonest employee could cause major financial harm.

As part of the bonding process, the surety company's underwriters will review your credit report and financial statements to determine the premium to charge.

If you have poor credit, don't worry. You can probably still obtain a bond. However, the cost will be higher. That's why having a clean credit history is helpful in keeping costs low since it shows bonding companies that your company has financial stability and less of a risk of making a claim.

Because different bond types cover different risks, the type of bond you purchase will affect the rate you'll pay. For example, you may need a bond that addresses misappropriation of company funds, or a bond that covers forgery of a client’s signature on a check.

There are certain industry-specific bonds that you may need to sign client contracts or an ERISA bond if your company has a 401(k) plan for its employees.

ERISA bonds generally cost less than other types of fidelity bonds. This is because they protect only plan assets, not those of clients or third parties.

While ERISA bonds are often required by law, a similar type of insurance, fiduciary liability insurance, protects plan administrators against claims alleging mismanagement of funds or other breaches.

There are things you can do to keep the cost of your fidelity bond coverage low.

A couple of strategies include:

When you buy a bond, you can pay your premium in monthly or annual installments. The annual premium often costs less than paying month by month.

Small businesses with no previous fidelity bond claims can expect to pay less for business insurance. Business owners can avoid claims by taking measures such as:

• Doing background checks on employees
• Installing a security system
• Training employees on ethical business practices
• Taking a “trust, but verify” approach

TechInsurance is a trusted insurance expert for small businesses, including nonprofits, startups, and independent contractors, with extensive knowledge of the IT sector and beyond.

We help small business owners compare quotes from top-rated insurance companies, purchase policies tailored to their business needs, and manage coverage online.

By completing TechInsurance's easy online application today, you can get free quotes for fidelity bonds and other types of insurance. Our insurance agents are available to help answer any questions you may have on the different types of fidelity bonds and bond requirements.

Once you find the right policies for your small business, you can begin your insurance coverage in less than 24 hours and get a certificate of insurance for your small business.

Insurance premiums vary based on the types of policies a business buys. View our small business insurance cost overview or find out the average costs for other common types of business insurance policies.