An employee dishonesty bond is a type of fidelity bond and insurance policy that provides coverage for financial losses that come about as a result of employee theft or fraud. An employee dishonesty bond is also sometimes referred to as commercial crime bonds or employee theft bonds.
Employee dishonesty bonds are not required by law, but they can provide a peace of mind for business owners if the business carries a lot of cash or valuables on site.
The cost of an employee dishonesty bond is dependent on the amount that you’d like to be covered. Generally speaking, the more valuables you have on-premise at your business, the higher your bond amount should be. For example, an electronics store that stores cash overnight (which isn’t a great idea) should have a higher bond amount than that of a convenience store that does not keep cash on site. The actual price of the bond is usually 1%-3% of the bond amount. It varies based on your credit score and personal profile.
Employee dishonesty bonds are never required by law, but they may be required by certain clients or to win certain contracts. For example, businesses that provide services to the government may be required to carry an employee dishonesty bond as a condition of the contract.
Some sensitive industries also require dishonesty bonds. For example, banks are often required to carry employee dishonesty bonds because they handle large amounts of cash and financial assets.
Even if an employee dishonesty bond is not required, it can provide valuable protection for businesses against losses resulting from employee dishonesty. If your business happens to keep client valuables on site, it can also signal to clients that they can trust you with their valuables.
There are generally three types of employee dishonesty bonds:
Blanket Bonds (most common): Blanket bonds provide coverage for all employees of a business, regardless of their job responsibilities or positions. This is the type that most businesses purchase.
Position Schedule Bonds: This type of bond covers theft by employees of a certain job position listed in the bond schedule. A position schedule bond is useful if the risk of theft is limited to certain positions within the company.
Name Schedule Bonds: These bonds cover only those employees listed by name in the bond schedule, regardless of their position or job duties. This type of bond is useful for businesses that can identify individuals with high risk of theft in their company.
Here at SuretyNow, we issue blanket bonds since they are most common and require the least amount of information to get started. If you wish to get a quote for position or name schedule dishonesty bonds, give us a call and we can certainly get those for you as well.
Employee dishonesty bonds act as insurance against theft in your business. Let’s illustrate this with an example.
Let's say that convenience store owner John decides to hire a new cashier Nancy, who acts dishonestly and steals cash from the register. Over the course of several months, Nancy steals thousands of dollars before being caught by John. The store owner files a claim on the employee dishonesty bond to recover the stolen funds. John sends video footage of Nancy in the act to his surety company.
After an investigation, the surety company determines that Nancy did indeed steal the money, and the claim is approved. The surety company then pays out the amount of the stolen funds to John, up to the limit of the bond. In this case, if the bond limit is $25,000, the insurance company would pay out up to $25,000 to cover the losses incurred due to the employee's dishonesty. It’s important to note here that even if the stolen amount was greater than $25,000, the amount paid out would still only be $25,000 because that is the bond limit that John chose when he purchased his bond. It’s important to pick the right bond limit that’s appropriate for your business!
The coverage for an employee dishonesty bond typically includes:
The following are not covered by employee dishonesty bonds:
We commonly see customers mix up business service bonds with employee dishonesty bonds, so we felt it was important to provide a distinction here. The two are similar in that they both guard against employee theft; however, they differ in the scope of their coverage. Employee dishonesty bond covers employee theft that happens at your business location, whereas business service bonds covers employee theft that happens on customer premises. Another distinction is that claims on business service bonds are paid out to the business customer who was victim to the theft and the surety company expects repayment from the bond/business owner, whereas claims on employee dishonesty bonds are paid out by the surety company to the business owner directly and no repayment is expected.
Even though employee dishonesty bonds are considered to be a category of surety, they are slightly different from other surety bonds. The most important difference being who pays for losses and claims. When a surety company pays out a claim on an employee dishonesty bond, they don't expect repayment, whereas with a standard surety bond, the bonded party is responsible for reimbursing the surety for any amounts paid to settle claims. A dishonesty bond works more like an insurance policy than a typical surety bond.
