A surety bond is a type of insurance where one party (the surety) obligates itself to a second party (the obligee) to answer for the default of a third party (the principal). This policy covers company employees.

A fidelity bond is a type of insurance that indemnifies the insured for loss caused by the dishonest or fraudulent acts of its employees. In addition, the fidelity bond typically covers the insured against: forgery or alteration; loss inside the premises caused by theft, disappearance and destruction, and

robbery and safe burglary; and loss outside the premises caused by the robbery of a messenger. The fidelity bond covers only losses incurred by the insured, and claims may be made under the policy only by the insured and paid to the insured. These policies do not cover losses caused by owners or partners of the insured.

NOTE: If this bond is secured, a separate rider or additional bond is required to cover the officer.

There are two types of fidelity bonds:

1. 1. 

   Blanket Bond – bond that guarantees the honesty of all employees of an entity up to the stated amount of the bond.

2. 2. 

   Schedule Bond – bond that guarantees the honesty of only named employees of an entity up to the stated amount of the bond.

An employee dishonesty bond is usually a blanket bond covering all company employees except officers (unless specifically mentioned in a separate rider). For dishonesty bonds of high amounts, the surety company may require the bond-holder to have certain loss prevention procedures in place, such as:

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  countersignature procedures for check signing;

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  audits by a Certified Public Accountant or an independent financial examiner, performed at least annually;

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  bank account reconciliation by someone not authorized to deposit or withdraw from the account;

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  employee discharge notification from an employer and reason for discharge or separation; or

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  joint handling of any securities.

A fiduciary bond is designed to insure honest accounting and faithful performance of duties by administrators, trustees, guardians, executors and other fiduciaries. Fiduciary bonds are sometimes referred to as probate bonds; do not confuse with the Fidelity Bond.

For the purpose of FFS organizations, an “insurance contract” or “insurance policy” is intended to protect the employer from financial loss due to the fraudulent activities of an employee or group of employees. For a loss to be covered the employer must suffer financial loss and the employee must obtain financial benefit from the act or provide direct financial benefit to another person or organization. The loss can be the result of the employee's theft of money, securities, or other property of the insured. Most employee dishonesty insurance policies are written on a blanket basis so that all employees are covered.

Officer(s) must also be covered. The insurance agent should advise if the officer(s) are covered under the employee dishonesty or theft clause and exhibited in the policy.

This insurance industry tool offers different types of coverage under one policy. The organization can choose the type and amounts of coverage based on the number of employees, assets managed, and risk factors.

The types of coverage offered in a simplified crime insurance policy may include (but are not limited to):

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  Employee Theft/Dishonesty

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  Depositors Forgery or Alteration

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  Theft, Disappearance, and Destruction of Money, Securities and Other Property (inside and outside the premises)

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  Computer fraud and funds-transfer fraud

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  Money orders and counterfeit currency

The Simplified Crime Policy with Third Party Coverage (on premises) means that the Employee Theft clause was expanded to include coverage for money, securities, and other property being held for a client on the representative payee’s premises. This may also be known as “Fiduciary bonding for third party finances” and to take effect, a criminal conviction is usually not required.