Fidelity Bonds vs. Crime Insurance: What’s the Difference?
Fidelity Bonds vs. Crime Insurance: What’s the Difference? : When it comes to commercial crime insurance, company owners are frequently perplexed when their brokers mention fidelity bonds. Is fidelity insurance and crime insurance the same thing? Is that the case, and if so, what is it?
The most straightforward response is that fidelity bonds and crime insurance are essentially the same thing. However, depending on your sector and the specific dangers against which you want to protect your business by purchasing the correct coverage, there are different forms of crime insurance and distinct demands for crime insurance.
Fidelity bonds are a sort of criminal insurance that protects businesses against particular types of fraud. Let’s look at the sorts of fidelity bonds accessible to companies and what crimes they may be used for.
The simplest definition of a fidelity bond is that it protects businesses against crimes that are directly connected to their workers’ wrongdoings. Because they protect the policyholder against crimes committed by others, fidelity bonds are sometimes associated with crime insurance.
There are three types of fidelity bonds that your company may require:
Dishonesty Bonds for Employees :
Employees attempting to steal stocks, money, or property from you will be protected by this form of bond. An employee dishonesty bond should cover any form of employee theft.
Bonds for Business Services :
This sort of bond protects your consumers and clients, rather than protecting you against employee theft. These bonds will allow you to compensate your clients if they have lost money, supplies, personal property, equipment, or anything else as a consequence of a fraudulent or dishonest conduct perpetrated by your employee.
A business services bond is an excellent method to demonstrate to customers, clients, and partners that you take crime seriously and are dedicated to keeping their money, property, and other assets secure when they engage with your company in any other way.
Bonds under the Employee Retirement Income Security Act of 1974
If your company offers pension plans as part of its employee benefits package, you must get a fidelity bond for your pension plan trustees that covers at least 10% of the plan’s total assets under the Employee Retirement Income Security Act (ERISA) of 1974.
The money in the plan is protected by this bond from the plan’s managers abusing funds in any way. In order to safeguard all of your workers who participate in the pension plan from fraud and dishonesty, such as embezzlement, forgery, larceny, theft, and misappropriation of plan assets, ERISA requires you to take out a fidelity bond for the individual who manages these money.
What’s the Difference Between ERISA Bonds and Fiduciary Liability Insurance?
Because both are tied to your firm’s trustees and fiduciaries, many business owners confuse ERISA fidelity bonds with fiduciary liability insurance. However, there is a significant distinction between the two.
The plan is protected by an ERISA fidelity bond, while fiduciary liability insurance covers the persons in charge of the plan in the event that something occurs to the assets that isn’t the product of the trustee’s actions of fraud or dishonesty.
As a result, organizations obtain fiduciary liability insurance to safeguard honest trustees who could be held accountable for plan losses as a result of an honest error they made.
An ERISA fidelity bond, on the other hand, protects plan assets from fraudulent and dishonest activities by fiduciaries.
Insurance against commercial crime
While fidelity bonds protect against particular employee-related offenses, a commercial crime insurance policy can provide your company with more comprehensive and broad coverage against criminal actions that could cost you money.
One of the primary distinctions between commercial crime insurance and most other insurance policies is that crime insurance covers financial losses resulting from a business-related crime, whereas most other insurance policies cover legal costs associated with claims filed against your company for a variety of reasons.
As long as that specific form of crime is covered by your policy, commercial crime insurance simply reimburses the financial losses incurred by the crime.
Employee theft, forgery, robbery, and cyber crime should all be covered by a good commercial crime policy. While both fidelity bonds and crime insurance are focused on employee crime since it is the most difficult to avoid, a good commercial crime policy should also cover damages connected to non-employee-specific crimes such as:
- Negotiable instruments, such as contracts and company cheques, are forged or altered.
- Money, property, or securities are stolen, destroyed, or damaged.
- Money was transferred to an outside account as a result of computer hacking.
- Financial losses as a result of social engineering fraud
- Receiving forged currency
- Electronic financial transfers that are fraudulent
While crime insurance will cover some computer crimes that result in financial losses, most brokers advise that most firms (particularly technology companies) acquire cyber liability insurance as well.
Cyber insurance will pay for legal fees, any settlements, and damages incurred as a result of third-party losses caused by a cybercrime that targeted your company.
Loss Sustained vs. Loss Discovered :
A business crime policy offers coverage in two scenarios: loss found and loss incurred.
If your insurance has a “loss found” form, it signifies your coverage applies to losses discovered during the policy period. That is, it makes no difference when the conduct that caused the loss occurred as long as the loss was identified when the policy was in effect.
In the case of a “loss sustained” form, coverage applies when a loss was really experienced. The preferable wording is usually “loss found,” because you’re covered for prior criminal activities as long as they were discovered when you were insured.
Creating a Claim
If you realize that you have suffered a covered loss, you should inform your insurer as soon as possible. Even if you aren’t confident of all the specifics surrounding the incident, contact your insurance to notify them that a claim is in the works.
According to best practices, you should give your insurer formal notice of the covered loss within 30 to 60 days after its recovery. In general, firms will have between four and six months from the date of discovery to present credible proof of loss to the insurer.
Many commercial crime insurance plans provide coverage for forensic specialists and attorneys to assist businesses in constructing a solid evidence of loss, since having a full report of the crime committed and the loss detected is in both the insured’s and the insurer’s best interests.