Bonding Insurance Explained

People who use phrases like “bonding insurance” or “insurance bonds” are often referring to fidelity bonds whether they know it or not. If you’re interested in bonding but are unsure about what options are available to you and what the benefits of each are, this guide will help steer you in the right direction.


What is Fidelity Bond Insurance?

Fidelity bonds are a form of insurance that protect against employee dishonesty such as theft, and usually aren’t required.  There are a few different types of fidelity bonds that have their own benefits that are important to understand.

Business service fidelity bonds protect customers from employee dishonesty by those hired to perform services on their property. Cleaning services, pest control companies or moving services often get this type of fidelity bond because it protects the life blood of their business, which are the customers. For example, if an employee steals from a customer and is convicted in a court of law, the business service fidelity bond policy will cover the losses.

An employee dishonesty fidelity bond protects an employer from dishonest acts of their own employees. This bond is very similar to a business service bond, but the protection is meant for the employer, not the customer.

ERISA fidelity bonds are actually required by law (thanks to the Employee Retirement Income Security Act of 1974) to protect participants and beneficiaries of employee benefit plans from fraudulent acts by those who manage the employee benefit plans (known as the fiduciaries). Read our article to find out more on what it means to be bonded with fidelity bonds.


What Are Surety Bonds?

It’s also possible that someone who uses a term like “bond insurance” is looking for information on surety bonds, which are very different from fidelity bonds. Surety bonds are required by the government or other third parties and provide guarantees. What the surety bond guarantees depends on the specific type; there are hundreds of surety bond types with guarantees that range from ensuring a mortgage broker won’t commit fraud, to guaranteeing a contractor will properly complete a construction job for a municipality. Check out our guide to learn more about how surety bonds work. If you’re still unsure whether you need a surety bond or fidelity bond insurance, please take a look at our bond insurance infographic guide. You can also take a look at the most frequent surety bond related questions here.

Now that you understand the difference between fidelity bond insurance and surety bonds, you should be able to make educated decisions on how to protect and run a business with the correct bonds in place. As always, if you have any questions, please leave a comment below.

Eric is the Chief Marketing Officer of JW Surety Bonds. With years of experience in the surety industry, he is also a contributing author to the surety bond blog. He has held a range of different roles within the surety industry, from agent assistant to bond issuer, which gives him a unique insider perspective on surety related topics.

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