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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

Insurance Companies Offering Fidelity Insurance< in India

Fidelity insurance is not widely known in the Indian market. However, the product is gaining popularity in recent years. Following are the general insurance companies offering fidelity insurance in India –

  • SBI General Insurance Company
  • Liberty General Insurance Company
  • HDFC ERGO General Insurance Company
  • Tata AIG General Insurance Company
  • Oriental Insurance Company 
  • Raheja QBE General Insurance Company
  • IFFCO Tokio General Insurance Company


Fidelity insurance coverage can vary depending on the requirement of the business. The coverage can be availed for particular departments or to all employees in the organisation. The cost of coverage typically varies from 0.5% to 2% of the total amount of coverage available.

Yes. Any loss or damage caused due to terrorism (which is generally excluded in the base plan) can be covered under the fidelity insurance by paying an additional amount of premium

The policy tenure for fidelity insurance is generally for 12 months.

Liability insurance and fidelity insurance are the two different business insurance products that are important for the financial protection of the company. Liability insurance is essential for businesses as it covers negligence that is the act of company employees resulting in loss or damage to business unintentionally. On the other hand, fidelity insurance cover is limited to intentional dishonest or fraudulent acts of employees resulting in loss or damage to the company. Liability insurance is more comprehensive and broader in comparison to fidelity insurance.