Fidelity Insurance – Types, Benefits &

Coverage Overview
Business owners put in a lot of hard work to grow a successful business. Though it’s an
overwhelming experience, it involves a lot of risks. Any successful business is built on trust
and personal relationships. ‘Breach of trust’ by employees is one of the major risks faced by
businesses. There can be many reasons for an employee to turn dishonest such as financial
crisis due to company separation, restricting company, dissatisfaction and frustration with
career growth or any other financial worries. Though such employees are only the minority
part of the workforce, employee thefts and fraudulent acts can result in huge business losses.
However, businesses can be protected from these risks by availing fidelity insurance. Let’s
learn more about fidelity insurance.

What is Fidelity Insurance?

Fidelity insurance or fidelity bond insurance is a business insurance product that provides
protection against business losses caused due to employee dishonesty, theft or fraud. The
policy compensates such losses to business owners within the limitations of the policy. Some
of the examples of business losses include theft of money, theft of business inventory and
using business cash for personal profit etc.

Types of Fidelity Insurance

Availing fidelity insurance is one of the parts in a business’s risk management practice.
Fidelity insurance plans are available in four types. Following are the types of fidelity
insurance plans available-

 Individual policy: Under an individual policy, coverage is limited to losses due to fraud or
dishonesty of an individual employee.
 Collective policy: Under the collective policy, coverage is provided against the business
losses caused due to fraudulent acts by a group of employees. Coverage in this type of
fidelity insurance policy will be decided based on each employee’s responsibilities and
position.
 Blanket policy: Blanket policy covers a group of employees without the names of the
guaranteed person. Basically, this type of policy is issued to well-established businesses.
 Floater policy: Floater policy guarantees a group of employees with one amount of
guarantee is given across the group. Minimum of five employees need to be there to avail this
cover.

Who can Avail Fidelity Insurance?

Every business having employees to handle cash and payment processes will require fidelity
insurance cover. The following business can avail fidelity insurance and get the benefits of
policy as these businesses are more vulnerable to the risk of employee frauds –

 Restaurants and cafes

 Retail businesses
 Businesses that require trade licenses
 A business that requires the collection of personal information from customers

What are the Features of Fidelity Insurance?

Fidelity insurance provides coverage against financial losses suffered by the organisation due
to fraudulent act employees. Following are the features of fidelity insurance –

 The policy provides comprehensive coverage against various risks arising from fraud and the
dishonest act of an employee or group of employees such as loss of money, property,
securities or other assets, computer fraud, forgery, loss to customers etc
 Fidelity insurance offer tailor-made coverage to businesses depending on the need and nature
of work
 Fidelity insurance offers coverage with a broad definition of ‘employees’
 Coverage under fidelity insurance will start for the insured event on or after the date of
commencement of the policy.
 Coverage is also applicable for a year or 12 calendar months from the date of policy
expiration
 In case of death, dismissal or retirement of the employee, coverage is valid for 12 calendar
months of such death, dismissal or retirement whichever of these events occurred first.
 What are the Benefits of Fidelity Insurance?
As fidelity insurance policy protects the business against losses arising due to an act of fraud
or dishonesty committed by employees, it becomes important for businesses to buy fidelity
insurance cover to have protection against such risks. Following are the benefits offered by
fidelity insurance –

 The fidelity insurance policy covers theft of funds committed by the employees
 The fidelity insurance provides coverage for loss of business assets such as property, stock
certificates or any other assets
 The fidelity insurance provides protection against loss of customer’s property caused by
dishonest acts of an employee
 The fidelity insurance protects the business from financial crises coming from a small portion
of the workforce (dishonest employees) which can affect the entire business and other
employees.
 The fidelity insurance protects the reputation of business along with ensuring absolute
transparency in supervision and accountability requirements within the business.
As a part of the company’s risk management strategy, it’s important and ideal for every
business to consider availing fidelity insurance. It’s always better to take precautions to stay
safe than to be sorry later!

What is covered under Fidelity Insurance?

Fidelity insurance contract provides coverage against the losses to the insured business which
is caused by an act of fraud/theft/dishonesty of an employee or group of employees.
Following are the coverages offered under fidelity insurance –

 Theft committed by employees is covered under the policy. This includes assets stolen and
the claims made by customers when the valuables are stolen.
 Act of forgery and defalcation of company’s money by employees
 Embezzlement, misuse of employment capacity for personal gain and any other dishonest act
by employees
The coverage offered to the insured company is limited to –
 Amount of guarantee stated against the name of any employee or against the relevant
group/category of employee in the policy schedule
 The total amount of guarantee specified in the policy

What are the Exclusions under Fidelity Insurance?

 Fidelity insurance policy does not cover the following losses –
 Losses arising out of the suppression of facts affecting the risk at the time of effecting the
policy
 More than one claims made in respect of any one employee
 If there are any changes in the conditions or circumstances of the said employment without
the consent of the company.
 Losses arising elsewhere than in the territorial limits stated in the policy schedule
 Losses arising due to non-observance and relaxation of the system of checks and precautions
 Consequential or indirect loss or damage which is not the direct result of insured perils, nor
does the policy cover apprehended loss or damage or contractual liability or legal liability of
any kind
 Discovered more than 12 months after the termination either of the guarantee or of the
service of the employee concerned
 Loss or damage attributable to willful acts or gross negligence on the part of the insured,
employee or any other person acting on their behalf
 Losses such as trading losses, stock-taking shortages and losses not caused by dishonesty or
fraud
 The loss is by an act committed subsequent to an earlier act of fraud or dishonesty which had
come to the notice of the insured or supervisor or to insured’s representative
 Any loss resulting directly or indirectly from trading in securities
 Terrorism damage

How does Fidelity Insurance Function?

Fidelity insurance is indispensable for many businesses today. To avail the fidelity insurance,
the business should have clear records and details in place. Fidelity insurance basically covers
losses incurred due to an act of dishonesty or fraud by employees such as forgery, identity
 theft, embezzlement and theft of funds/property or cash etc. Working on fidelity bonds is
quite simple. The fidelity insurance plan functions as below –

 A business that is seeking fidelity insurance needs to provide a detailed list of employees and
list of various departments under which business can incur a loss due to fraud or dishonesty
of an employee/employees
 Fill in the proposal form and provide every information required by the insurance company.
It’s important to disclose every detail and information to avail any hassles later during the
claim time
 Depending on the number of employees, nature of business and risk exposure, the premium
amount will be determined.
 A business owner can submit the proposal form along with other relevant documents when
the understanding of policy and premium payment is clear
 During the policy term, if any losses or damage arising due to an insured event, insured
business needs to immediately intimate the insurance company to claim the compensation
 To initiate the claim, relevant documents along with duly filled claim form needs to be
submitted to the insurance company
 The insurance company will then conduct a survey to estimate the loss
 In case the claim gets approved, the claim amount will be paid out to the insured business
depending on the policy limits, terms and conditions
 If the claim gets rejected, the insurance company will inform the insured business with an
appropriate reason
 If the insured business is not satisfied with the resolution, it can take up the matter with the
court of Law.
For example, let’s say the director of finance in a company has been transferring funds from
the company’s bank account to his account or utilising the company’s funds for personal use
without anyone knowing about these transactions. When this embezzlement comes into
notice, the company’s financial loss due to this fraudulent act will come into the light. In this
case, insured companies can claim coverage for loss under fidelity insurance as soon as the
embezzlement is discovered. The insurance company will compensate for the loss after the
careful audit and investigation of the case.
 Claim Process for Fidelity Insurance
The claim process for fidelity insurance is quite simple and easy. Following are some of the
easy steps to follow for fidelity insurance claims

 The insured company must immediately intimate the insurance company on the occurrence of
claim incident
 The insured company needs to take immediate disciplinary action against the employee
(based on the situation)
 The act of infidelity must be furnished with relevant proofs along with submission claim
documents and proof of loss to the insurance company
 The insurance company carries out the forensic audit
 The forensic auditor will verify and approve the claim amount (insured’s in-house and
overhead expenses are not included in the claim amount)
 If the claim is rejected, the insured company/claimant will be informed with the exact reason
for a rejection
 If the claimant is not satisfied with the resolution provided, the matter can be taken to the
court of law

Documents Required for Fidelity Insurance Claims

Following are the documents required for fidelity insurance claims

 Duly filled and signed claim form

 Photocopy of the fidelity insurance policy document
 A detailed description of the employee’s job duties
 Private reference of the fraudulent employee
 Internal investigation report
 CCTV footage in case of theft
 Police FIR regarding the theft or embezzlement
 Auditors report estimating the quantum of loss
 Details on the date of discovery of the loss
 Statement from witnesses who can validate the loss
 Evidence of stolen property values such as receipts or invoices, if any
 Evidence of forgery or identity theft along with proof of loss
 Terminal benefits from any employee