Fidelity Bond Insurance: Coverage, Claim & Exclusions

Updated: 27-06-2022 16:37:04 PM

Setting up your own business is a big achievement; however, it also entails huge risks. One such risk is fraudulent activities by employees which can even lead to the closure of the business. To overcome the losses arising from such situations, one can opt for fidelity bond insurance.

What is Fidelity Bond Insurance?

Fidelity bond insurance is a type of insurance plan designed to safeguard an organisation from losses caused due to fraudulent activities by specified individuals or group of individuals.

This is a form of business insurance which generally covers the dishonest activities performed by its employees.

Read More: What is Commercial Insurance – Coverage, Claim & Exclusions

Types of Fidelity Bond Insurance

This plan can be purchased under the following heads:

• 1^st party coverage: Losses incurred by the business due to wrongful activities by its employees
• 3^rd party coverage: Claims made by the customers/clients when they incur losses due to deceitful activities by the business
• Blanket bond: Covers all the employees of the organisation
• Floater policy: Just single amount is depicted in this policy. It is based on each individual to be insured. Minimum 5 employees must be enrolled in this plan

What all Fidelity Bond Insurance Covers?

Fidelity bond insurance not only covers the employees against the fraudulent activities but also protects the customers who are at the receiving end of such acts. This bond or insurance covers the following areas:

• Forgery: Copying signature or details and transfer of money from the company/ customer account
• Asset theft: Stealing of valuable assets from the company
• Identity theft: Employees steal the identity details from the stored details on organisational servers or shared drives
• Embezzlement: Losses incurred due to fiddling of funds by employees
• Theft by customers/clients: Claims made by customers/clients when employees steal money/valuables from them

How Fidelity Bond Insurance Functions?

For any business to purchase fidelity bond insurance, it should have all the details and records of the business in place and then understand how the plan functions. Let us look at how the policy works.

• First, make a list of the various heads under which you can incur losses, in case of any fraud
• Keep ready the list of employees in your organisation
• Fill up the proposal form with correct details. Any mistake or hiding of information can create trouble during making claims
• Understand the premium amount to be paid, which depends on the nature of work and number of employees
• Submit the form with required documents
• In case of a requirement for any claim, inform the company as soon as possible
• Submit the required documents along with the policy papers and number
• The insurance company will conduct a survey to understand the loss
• In case it is approved, the claim amount will be handed out
• If the claim is rejected, the same will be informed to the insured
• If the insured is not satisfied, he/she can always approach the court of law

Eligibility Criteria 

Anyone who owns a business and employs individuals is eligible to purchase fidelity bond insurance. Fidelity bond insurance is best for businesses in which

• a trade license is needed
• employees handle financial transactions
• personal information is collected from the customers

Fidelity Bond Insurance Claim Process

It is easy and quick to settle the fidelity insurance claim process. Let us understand how this is done.

• When an incident occurs, the insured is required to immediately inform the insurance company about the issue
• Required documents are submitted to the insurance office
• Forensic audit is carried out by the insured
• The forensic auditors verify and approve the claim amount
• In case the claim is rejected, the same is informed to the claimant
• If the claimant is not satisfied with the resolution, there is an option to raise a dispute in the court of law

Documents Required for Claim Process

For claim settlement, following documents must be submitted:

• Duly filled in claim form
• Photocopy of the policy
• FIR report in case of theft
• Evidence of identity theft/forgery
• Details of valuables lost (proof of loss)

Cases Where you Can’t Claim Fidelity Bond Insurance (Exclusions)

Not all cases and situations are covered by fidelity bond insurance. There are certain exclusions for which you are not entitled to any protection. Some of these cases are:

• Physical injury
• Breach of contract
• Errors & Omissions
• Losses incurred before the policy commenced
• If the loss is not within the retrospective date
• Employee misdeeds which did not cause any monetary loss
• Wilful negligence from the employer end which led to the forgery/monetary loss

Companies Offering Fidelity Bond Insurance in India

Fidelity bond insurance is gradually gaining popularity in India. Some of the companies providing the policy in India are:

• SBI General Insurance
• HDFC Ergo
• Tata AIG
• Bharti AXA
• IFFCO Tokio General Insurance
• Liberty General Insurance
• Oriental Insurance

Important Aspects

Before purchasing the fidelity bond insurance for your business, it is important to understand the policy well and keep certain points in mind. Some of them are:

• It will cover claims only up to the amount mentioned in the policy

• This plan provides flexibility to choose the scope of cover i.e. whether the whole company, selected employees or just the claims made by the customers are to be included
• The employer needs to take immediate disciplinary action against the accused employee
• The insured must carry on regular account tallying, investigation and maintain proper records in order to receive claim amount

Advantages of Buying Fidelity Bond Insurance

Fidelity bond insurance is one of the oldest insurance plans in place. The policy is important for business and it is gradually gaining popularity due to increasing awareness. Some of the benefits of fidelity bond insurance are:

• It makes the process of getting a trade license easy
• This insurance policy can reduce the premium for commercial property insurance
• Policy holders can cover the complete value of the lost assets (till the limit of the sum insured)
• These bonds ensure financial stability in the business as the reimbursement for the act is covered by the insurance company
• This policy aids in protecting the reputation of the employer
• It ensures transparency in account-checking and standard supervision within the company

FAQs

Q1. What is the premium for fidelity bond insurance?

The premium is 0.5- 2% of the total coverage requested by the insured. It is also dependent on the number of employees and their nature of work.

Q2. What is the difference between Errors & Omission Insurance and Fidelity Bond Insurance?

Errors & Omission Insurance covers mistakes and oversights, while fidelity bond insurance covers deceitful acts.

Q3. Is any extension possible in this plan?

Additional premium can be safeguarded against the loss caused by terrorism.

Q4. What is the policy period for this plan?

This policy is generally for 1 year.

Q5.  What are the deciding factors of the sum insured for fidelity bond insurance?

The sum insured is dependent on the following factors:

• Number of employees and their job profile in the organisation
• Maximum amount of funds or stocks which are handled by the employee