A bond is basically a contract where a company agrees to pay back a certain amount of money or provide other services to its customers if they fail to meet their obligations.
Surety bonds are typically issued by companies that offer insurance against losses caused by employees' misconduct.
They usually cover the costs associated with lawsuits filed against the company. This article will discuss fidelity bonds and surety bonds and their differences.
A fidelity bond is an agreement between a business and its clients, employers, or others who have entrusted them with valuable property.
It protects these people from financial loss due to theft, embezzlement, forgery, alteration, misappropriation, fraud, or any other dishonest act committed by the employee in connection with his job duties.
The bond covers the value of the stolen property up to a specific limit. For example, it may be $1 million dollars, or it may be $10,000.
The bond also provides protection for the client, employer, or others who entrusts the employee with the property. If the employee steals the property, the bond pays out on behalf of the client, employer, etc.
Companies need to get fidelity bonds because they want to protect themselves from the risk of losing money or having to pay damages to their customers, clients, or others when an employee commits a crime while working at their place of employment.
For example, suppose you work as a bookkeeper for a small accounting firm. You're asked to prepare payroll checks for your boss, but instead you forge her signature and pocket some of the cash.
If she finds out about this, she could sue you and claim that you stole the money. In addition, the IRS might come after you for tax evasion.
If you don't have a fidelity bond, you'll lose the money you took and possibly face criminal charges.
A surety bond is an agreement between two parties: one party (the principal) promises to do something, and another party (the surety) guarantees that he will perform the promise.
In the case of a fidelity bond, the principal is the company that needs to get a surety bond. The surety is the person or company that agrees to guarantee the performance of the principal.
In most cases, the surety is a bank or insurance company. However, there are times when a private individual can agree to serve as the surety.
When someone applies for a surety bond, the surety company reviews the applicant's background and credit history. They then ask him questions about how he plans to use the bond.
After they've determined whether he has good character and sufficient funds to repay the bond, they issue the bond.
Once the bond is issued, the surety becomes responsible for paying claims made against the principal if the principal fails to fulfill his obligations under the contract.
This means that if the principal doesn't perform his job properly, the surety must step in and make up the difference.
A fidelity bond differs from a surety bond because it only covers the loss of property, not the cost of defending yourself in court.
A surety bond is similar to a fidelity bond, but it also covers legal expenses incurred during the litigation.
In addition, a fidelity bond does not include coverage for claims arising from intentional acts such as arson.
Most businesses need fidelity bonds, including construction companies, law firms, real estate agencies, accountants, and many more.
Also, if you run a business where employees handle confidential information, you should consider getting a fidelity bond.
These types of businesses include financial institutions, medical practices, and other industries where theft or fraud would be detrimental to the company.
The following are examples of companies that typically require fidelity bonds:
To find out if you qualify for a fidelity bond, contact your bonding agent. He or she may be able to tell you if you need one by reviewing your application.
You can also check with your local Better Business Bureau. It may have records of complaints filed against your prospective employer.
If you're still unsure, call the National Association of Insurance Commissioners at 1-800-879-2227. This organization maintains a database of all state regulators.
The cost of a fidelity bond depends on several factors, including the amount of money you plan to spend on the bond.
Typically, the premium on a fidelity bond ranges from $1,000 to $5,000 per year.
However, this number varies depending on the size of your business. For example, a small firm might pay less than $2,500 annually while larger corporations usually pay much higher premiums.
Surety bonds are usually required by government entities, such as schools, hospitals, and local governments.
They may also be used by non-profit organizations like churches and charities.
For example, a church might want to obtain a surety bond so that its members' donations won't go missing.
To get a surety bond, contact your bonding agency. They will review your application and determine whether or not you qualify.
Usually, they'll ask you about your annual income and how much money you expect to spend on the bond each year.
Once they've determined that you qualify, they'll issue the bond.
The premium on a surety bond depends on several factors. These include the type of business involved, the location of the business, and the amount of money expected to be spent on the bond.
Typical costs range from $100 to $10,000 per year. However, these numbers vary widely.
Fidelity bonds and surety bonds serve different purposes. While both provide protection against employee theft and other forms of fraud, there are some key differences between them.
As you prepare to apply for either type of bond, make sure you understand their requirements. You don't want to miss any important details when applying for coverage.
