Fidelity coverage: Overview, definition, and example
What is fidelity coverage?
Fidelity coverage, also known as fidelity bond or fidelity insurance, is a type of insurance that protects a business from losses caused by the dishonest or fraudulent actions of its employees or other trusted individuals. This coverage typically includes protection against theft, embezzlement, forgery, or any other form of dishonest behavior that leads to financial loss for the business. Fidelity coverage is commonly used by businesses to safeguard against risks related to employee misconduct, especially when dealing with financial transactions or handling company assets.
In simpler terms, fidelity coverage is insurance that helps a business recover money if employees or trusted individuals steal from the company or act dishonestly.
Why is fidelity coverage important?
Fidelity coverage is important because it helps protect businesses from financial losses caused by trusted individuals who may engage in unethical or illegal activities, such as stealing money, falsifying records, or misappropriating assets. Even businesses with strong internal controls are at risk, as human error or intentional dishonesty can lead to significant financial harm. Fidelity insurance helps provide peace of mind by covering the costs associated with such dishonest acts and ensures that the business can recover without facing severe financial setbacks.
For SMB owners, fidelity coverage is a key part of a broader risk management strategy, ensuring that the company is protected from internal fraud and misconduct.
Understanding fidelity coverage through an example
Let’s say you own a small retail business, and one of your employees in charge of handling the cash registers is caught embezzling funds. The employee stole money from the cash register over several months, and the business suffers a financial loss. Because your business has fidelity coverage, your insurance will cover the amount stolen, allowing your company to recover the lost funds and avoid significant financial hardship.
In this case, fidelity coverage protects your business from the impact of employee theft and helps ensure that your operations continue smoothly.
Example of a fidelity coverage clause
Here’s an example of what a fidelity coverage clause might look like in a business insurance policy:
“The Company shall maintain fidelity coverage insurance to protect against losses resulting from fraudulent or dishonest acts by employees, including but not limited to theft, embezzlement, or forgery. The coverage shall provide a minimum coverage limit of $[X] and shall include protection for all employees with access to company funds, assets, or sensitive information.”
Conclusion
Fidelity coverage is essential for protecting your business against losses caused by dishonest or fraudulent actions of employees or trusted individuals. For SMB owners, this insurance provides an important safety net, ensuring that the company is financially protected in the event of internal theft or fraud. By including fidelity coverage as part of your business's insurance portfolio, you can safeguard your assets and reduce the risks posed by employee misconduct, providing peace of mind and financial security.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.