Fidelity bonds and public official bonds protect businesses from employees’ fraudulent and dishonest acts. Like surety bonds, they are three-party agreements between the obligee (the business purchasing the bond), the principal, and the insurance company that issues the bond. Most small businesses should consider fidelity bond coverage, including those handling cash or payments and working with customers in their homes. Learn more about these essential types of coverage.
What is a Fidelity Bond?
The fidelity bond guards businesses against losses brought on by employee fraud and dishonesty. This type of coverage is often added to a company’s insurance policy as an extra layer of protection against employee theft and dishonesty. A fidelity bond differs from regular business insurance because it offers more specific and in-depth coverage for certain situations. For example, a fidelity bond may cover your business for theft of money or securities from the company by certain employees. At the same time, a standard property and casualty insurance policy would only offer general loss-control services. There are several types of fidelity bonds, including ERISA, employee dishonesty, and business service bonds. The client requires these bonds before hiring a professional to access their private or commercial property (valet parking or cleaning services). They are a three-party agreement between the public official, the surety bond company, and the obligee.
What is a Public Official Bond?
A public official bond guarantees that elected or appointed local government officials will perform their duties honestly and responsibly, handle public funds properly, and return property and records to the appropriate authority when leaving office. The types of government officials that typically need to purchase these bonds are treasurers, city managers, tax collectors, sheriffs or other law enforcement officers, coroners, commissioners, clerks of court, notary publics, and trustees. Like other fidelity bonds, these are a three-party agreement between the obligee, the principal, and the surety that issues them. When determining the rate for these bonds, the surety considers the position for which the individual is being bonded, the level of risk associated with that particular office, and the applicant’s credit score. The bonds also have a tail period, meaning they remain in effect even after the individual leaves their office. It is a unique feature that helps protect the community from dishonest acts by former governmental officials.
How Much is a Fidelity Bond?
There are many types of fidelity bonds. Some are required by law for certain public positions. Other types of fidelity bonds are purchased as part of a risk management strategy by companies that want to protect clients. For example, a business service bond protects clients who hire a window repair worker, dog walker, or home health provider to work at their homes. If that employee steals cash or jewelry from the client, the bond covers damages up to a specified limit. There are also ERISA bonds, which are required for pension plan trustees to protect them from theft of funds by other plan officials. Other fidelity bonds are tailored for specific industries or job functions. For instance, an employer who hires employees to inspect a building for mold would likely need a specialized habitation or environmental assessment bond.
How Much is a Public Official Bond?
Most states require public official bonds for elected and appointed positions like governors, mayors, judges, court clerks, sheriffs, deputies, tax assessors, town supervisors, local school board members, and agents selling hunting or fishing licenses. These bonds protect the state government entity that requires the bond against financial loss from the bonded public official’s misconduct or negligence while serving in their position. It’s important to understand that a public official bond is a three-party contract. This arrangement involves the principal, the surety firm that provides the bond, and the obligee (the entity that requests the bond). The cost of a public official bond varies by state and often considers the role, associated risk, and an individual’s credit score when calculating rates. The bonded official must reimburse the surety company for any valid claims paid out on their behalf. This arrangement allows the state to effectively manage the risks of granting public positions.
