Fidelity Bonds

A form of bond purchased by an employer and business owner to protect themselves from defined fraudulent conduct.

Author: Adin Lykken
Adin Lykken
Adin Lykken
Consulting | Private Equity

Currently, Adin is an associate at Berkshire Partners, an $16B middle-market private equity fund. Prior to joining Berkshire Partners, Adin worked for just over three years at The Boston Consulting Group as an associate and consultant and previously interned for the Federal Reserve Board and the U.S. Senate.

Adin graduated from Yale University, Magna Cum Claude, with a Bachelor of Arts Degree in Economics.

Reviewed By: Himanshu Singh
Himanshu Singh
Himanshu Singh
Investment Banking | Private Equity

Prior to joining UBS as an Investment Banker, Himanshu worked as an Investment Associate for Exin Capital Partners Limited, participating in all aspects of the investment process, including identifying new investment opportunities, detailed due diligence, financial modeling & LBO valuation and presenting investment recommendations internally.

Himanshu holds an MBA in Finance from the Indian Institute of Management and a Bachelor of Engineering from Netaji Subhas Institute of Technology.

Last Updated:November 29, 2023

What are Fidelity Bonds?

A fidelity bond is a form purchased by an employer and business owner to protect themselves from losses caused by defined fraudulent conduct.

The definition is similar to that of a standard insurance policy; however, these bonds are used to protect a company from fraudulent or dishonest activities committed by its personnel.

As a result, they provide clients with the comfort that the company they choose to do business with is financially sound. It also provides protection, such as reimbursement for any fraud or theft that may occur during the course of commerce.

While these bonds are characterized as "bonds," the agreed-upon responsibilities are considered insurance policies, safeguarding firms from losses of money, securities, and other property, caused by employees (or clients) who aim to harm the company. 

Other types of crime-insurance policies include fire, general theft, computer theft, disappearance, forgery, burglary, and fraud, among others. However, these bonds are usually only paid out if the defendant is guilty. 

They apply to any conduct that inappropriately benefits an employee financially or harms the company financially. These are not tradeable and do not pay interest like regular bonds.

It's important to understand how the bond works and with whom the insurance company is issuing your bonds. When dealing with a trusted and accredited company licensed to write surety and fidelity bonds, it can be easy to obtain a fidelity bond.

Surety Place, for example, supplies access, partnerships, and specialty programs with numerous "A" rated sureties across the US.

Types of Fidelity Bonds

A few of the types are:

1. First-Party Bond

The most prevalent sort of bond is first-party bonds, which are explained above. They defend businesses against employees or clients/customers who knowingly engage in deceptive and detrimental behavior that harms the company and its assets.

Theft, forgery, fraud, and other criminal activities are examples of such acts.

2. Third-Party Bond

Third-party bonds are intended to safeguard businesses against the intentionally detrimental conduct of contractors working for them. Independent contractors and consultants are examples of such workers.

It's worth noting that anyone who works on a contract basis is usually required to get third-party insurance. In many circumstances, however, the corporation using the contractor must request that the contractor obtain third-party insurance.

Financial institutions, banks, and lending institutions almost always require third-party insurance to be held by a contracted party. This ensures protection from losses due to theft.

It is the duty of the business acting as a contractor or subcontractor in a business partnership to carry third-party fidelity bond coverage, even if it is usually the other party who seeks or demands it. 

Fidelity Bonds Examples

In general, there are two types of fidelity insurance accessible in today's market:

  • Bonds issued for financial entities (banks, stockbrokers, insurance companies, etc.)
  • Crime insurance policies for businesses (offered to non-financial commercial entities)

There are different policy formulations for various sorts of institutions under each category. These are some of them:

  • Financial Institution Bonds, Standard Form No. 14 for Brokers/Dealers
  • Financial Institution Bonds, Standard Form No. 15 for Mortgage Bankers and Finance Companies
  • Credit Union Blanket Bond, Standard Form No. 23 for Credit Unions
  • Financial Institution Bonds, Standard Form No. 24 for Commercial Banks, Savings Banks, and Savings and Loan Associations
  • Financial Institution Bonds, Standard Form No. 25 for Insurance Companies
  • Commercial Crime Insurance Policy
  • Commercial Crime Insurance Policy for Public Entities

Why Fidelity Bonds Are Used

Employee theft costs firms millions of dollars each year, sometimes leading to bankruptcy. Any business with employees, regardless of size or sector, should acquire a fidelity bond to protect themselves from fraud. 

According to the Chamber of Commerce of the United States of America:

  • At least once, three out of every four employees admit to stealing from their companies.
  • Employee theft is the cause of one out of every three business failures.
  • Each year, American businesses lose more than $50 billion due to employee dishonesty.

A fidelity bond, a kind of insurance for any business that invests in it, is very useful.

These can be part of a company's enterprise risk-management strategy. This insurance policy is a form of protection if the company suffers damages due to fraudulent or criminal employee acts against the firm or its customers.

Even if the employee (or client) commits the conduct successfully, the bond covers the damage. These bonds can aid the company's bottom line by preventing it from going into debt or, even worse, going out of business.


These bonds are very important for businesses to avoid risks from employees, clients, etc. There are some notable features of these kinds of bonds. Some of the features are noted below-

  1. Fidelity bonds shield policyholders from malicious or damaging activities perpetrated by workers or clients.
  2. There are two types: first-party bonds (which protect companies from damaging activities by employees or clients) and third-party bonds (which protect companies from the harmful acts of contracted workers).
  3. These bonds are beneficial since they are part of a company's risk management strategy, hedging the company against acts that would harm its assets.
  4. These bonds are not transferable.
  5. This insurance type is part of a business's risk-management plan.

    Researched and authored by Rishav Toshniwal | LinkedIn

    Reviewed and edited by James Fazeli-Sinaki | LinkedIn

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