Fidelity coverage, sometimes known as a fidelity bond, is a type of insurance that will protect a business owner against the theft of money, property, forgery or fraud by an employee. It will guarantee that if a business owner or employer suffers any loss due to employee dishonesty, the chosen insurer will share this loss as long as they are within the limitations prescribed by the contract.
The difference between liability coverage and fidelity coverage
Standard liability coverage will cover a business for a number of things such as if a customer or client is injured on business premises. In this case, a business will be covered for the cost of any medical bills, loss of income or hospital fees that may be incurred because of this. This type of insurance will also cover a business if it is required to pay to defend a lawsuit that is taken out against them.
These things are not covered by fidelity insurance, which is why it might be just as important for your company to take such an additional cover out. However, it’s important to understand the exceptions and limitations before you commit to a policy.
What you should consider before taking out fidelity insurance
Of course, fidelity insurance will not guarantee the honesty of an employee, but it will offer you protection in the worst case scenario. Policies will vary, but there are a few things that need to be carefully considered before you sign on the dotted line.
- Any theft must be committed by an employee
Most insurers that offer fidelity coverage will only offer policies that cover theft committed by employees. To be an employee, an individual must be compensated directly by salary or commission and be directed by the performance of their services. Therefore, if you employ volunteers, non-salaried members and association managers you will need to expand the policy’s definition of an employee to include such individuals. The coverage you have in place might also be made invalid if the individual caused fidelity insurance to be cancelled at a prior job. This person is considered a high-risk employee.
- The loss must be a result of the theft
To be covered for theft, the individual that is covered must have committed the act with the intent to cause loss to the company. Funds that are simply “lost” without intent are therefore not covered. This is usually referred to as “negligence”. Some policies will require you to take certain steps to prove that the loss was as a result of intentional theft and, in some cases; policies will not pay out unless a conviction is obtained by the individual.
- A covered asset must be stolen
Some policies will only cover you against the loss of certain assets such as money. In a lot of cases, this makes the policy useless as your business will need coverage against the theft of assets such as property and stock.
An insurance audit will thoroughly review the policies and endorsements of your company or association and can even save you a huge amount of money in the long run.
Types of fidelity guarantees
- Individual Policy – This will simply cover one person for a stated amount.
- Collective Policy – This covers a group of employees with the amount of guarantee for each being decided on by the business, taking into consideration their position within the company.
- Floater Policy – In this policy, a single amount is shown which represents the insurer’s liability in respect to one individual and its total liabilities in respect of all that are individually named within the guarantee. This type of policy requires you to insure more than five employees.
- Blanket Policy – In a blanket policy, the names of guaranteed individuals do not need to be shown and instead employees are grouped into categories such as those handling cash and other clerical staff. Mostly, this type of policy is only issued to large, well-established businesses.
What is the procedure to claim business fidelity insurance?
If you believe that an employee has stolen from your business, you should take immediate steps so that you can recover the cash/stock and move forward with disciplinary action. The “act of infidelity” must be established by the employer as well as recording information such as the time that the cash/stock was noticed missing. The policyholder must then submit a “proof of loss” to the insurance company which details the amount they wish to claim.