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Bonds are generally divided into two types, Fidelity Bonds and Surety Bonds. Both types
differ from insurance in that they always have three parties as central to the contract: a
Principal (the entity or person that might cause the loss), an Obligee (the entity that
collects under the bond, should the principal cause a loss) and a Surety (the entity that
pays the loss, such as an insurance company).
Fidelity Bonds
Fidelity Bonds are technically a form of Surety Bonds, but are usually considered a
distinct product in common usage. They are issued as a guarantee against loss due to
employee dishonesty. As such, they are an important part of a company's insurance program,
because they cover areas not covered in the company's Liability and Property
Coverages.
For many businesses, employee's dishonest acts are a principal area of their insurable
risks, and Fidelity Bonds can provide their principal insurance protection.
Fidelity Bonds come in several forms, including:
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Individual Bonds--in which an individual employee is bonded. Individual
Bonds are
not standardized. They can be most easily used for unusual situations or activities, and
can most easily be specially scripted.
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Scheduled Bonds--in which individual positions (called a Positions Schedule Bond)
or named individuals (called a Name Schedule Bond) are covered, for example all branch
personnel in a bank, or all tellers.
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Blanket
Bonds--Used to cover all employees, and thus provide the most complete
coverage of the three types. The coverage is especially valuable because of the latitude
given in demonstrating a covered loss. The employer doesn't need to show that a specific
covered employee caused a loss. If the employer can show that an employee must have caused
the loss--that it was an inside job!--then coverage will be provided.
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Discovery Bonds--An important extension of the
Fidelity Bond types. A Discovery
Bond allows a first-time buyer of Fidelity Bonds to protect against undiscovered loss that
occurred before the bond was issued. If you, as employer, have just realized the
need for a Fidelity Bond as part of your insurance coverage, you should also consider
buying Discovery period coverage.
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Surety Bonds
Surety bonds are issued to cover an extremely wide range of actions and situations. They
are issued by surety companies, and can be classified into one of the following areas:
Contract Bonds
Court Bonds
Federal Bonds
License and Permit Bonds
Public Official Bonds
Other/Miscellaneous Bonds |
