Fidelity bonds are a sort of insurance used in business to protect against loss due to employee misconduct. Fidelity bonds cover situations such as embezzlement, fraud and theft, and they are generally purchased as additions to an organization's regular business insurance plan.
Fidelity bonds, also known as business services bonds, provide coverage for businesses when the business has an employee working on customer property. These bonds protect primarily against theft by the employee. If theft occurs, the bond pays the value of the stolen item to the business, which can then use the proceeds to pay customers for any loss.
Fidelity bonds for pension plans exist to protect from pension plan loss due to theft or fraud by those who handle the plans. The bonds are required by law and must provide coverage equal to at least 10 percent of the assets in the pension plan. The maximum required by law is $500,000 worth of coverage for cash pensions or $1 million in coverage if the pension plan contains employer securities.
Fidelity bonds typically cost between 1/2 percent to 1 percent of the bond's value. There is no absolutely set cost for the bond, however, with bond prices changing according to the size of the bond, the company handling the bond and the size of any deductible.