Dishonesty bonds are surety bonds tailored to protect businesses against employee theft. Although you try to vet your employees as much as possible, it’s impossible to predict everything. In the unfortunate case that an employee decides to steal from a company, a dishonesty bond can provide compensation for what was stolen. For example, if one of your directors embezzles $100,000 from your company, the surety company will provide $100,000 to replace what was stolen. These bonds are not required by law but are crucial for covering your business from loss due to employee actions. It can cover:
- Theft of money or merchandise
These types of bonds vary. Some bonds will require the accused employee to be convicted for the theft before you are able to file a claim with the surety, so check your bond to understand the parameters and requirements of coverage.
Is a Dishonesty Bond the Same as Crime Insurance?
Crime insurance and dishonesty bonds are very similar. Both are designed to cover criminal acts that may affect the business. Business crime insurance can cover acts of fraud, embezzlement, forgery, robbery, theft and more. Despite their similarities, however, crime insurance and dishonesty bonds are not the same. Instead, a dishonesty bond is a type of fidelity bond, which is considered a variation of crime insurance.
One main difference is that crime insurance does not cover customer related theft. If an employee is accused of stealing from a client, you will need a dishonesty bond in order to reimburse the client. Crime insurance also does not cover crimes committed by any of your business partners while dishonesty bonds covers any employee or group of employees.
You cannot purchase these coverages together as part of a package. While crime insurance can often be added to a commercial package policy or business owners policy, dishonesty bonds must be purchased separately.
In some cases, it may be wise to carry both crime insurance and a dishonesty bond, as they cover gaps that the other leaves.
How Much is a Dishonesty Bond?
The cost of a dishonesty bond depends on the coverage, but they are relatively inexpensive. Bonds can start at $100 a year while most range between $300 and $400 a year for $100,000 worth of coverage. As with insurance, this bond is paid through monthly or yearly premiums. These premiums also depend on:
- Number of employees
- Coverage limits
- Annual revenue
Industries with statistically high rates of theft may have to pay more for a dishonesty bond. Industries with a high rate of theft include food and beverage, consumer electronics, pharmacy and household goods. The more your business makes, the more you stand to lose in the face of employee theft.
Do I Need an Employee Dishonesty Bond?
Every business owner’s needs are different, but all face some of the same dangers. Theft is a huge danger to businesses across the U.S. In fact, employee crimes cost businesses in the U.S. about $50 billion a year and statistics show that about 75% of employees steal from employers at least once during employment. Having a dishonesty bond in place can help compensate for any losses incurred by employee actions. Even small businesses should consider an employee dishonesty bond. Although a smaller business may not make a lot, they also stand to lose a hefty chunk of their income. Small businesses will have a harder time recovering from heavy financial loss without savings or income to lean back on. An employee dishonesty bond can prevent one act of employee theft from sending the business under.