There are almost a million small businesses in North Carolina. All those businesses need to ensure they protect themselves and their employees.

When it comes to types of bonds, things can get complicated.

Luckily, we’ve got the information that you need. Let’s go through what you need to know about a fidelity bond vs. a surety bond.

What Is a Fidelity Bond?

Fidelity bonds are a type of business insurance policy that protects against financial losses that may occur as a result of dishonest or fraudulent acts committed by employees.

These business bonds are primarily to safeguard financial assets and maintain the trust of a business’s clients, customers, and stakeholders.

Fidelity bonds have coverage limits, which specify the maximum amount the insurance company will pay out when a loss happens. The organization can choose the coverage amount based on its needs and perceived risks.

What Is a Surety Bond?

Surety bonds make sure that all business agreements are followed. A surety bond involves three key parties: the principal, the obligee, and the surety company. These types of bonds serve as a form of assurance and protection in various industries and scenarios.

The principal, often an individual or business entity, is the party that is required to obtain the surety bond. They have a specific obligation or responsibility that must be fulfilled, whether it’s related to a contractual agreement, a legal requirement, or a regulatory mandate.

The obligee, on the other hand, is the party that demands the surety bond. They want a guarantee that the principal will meet their obligations or adhere to certain terms. The obligee seeks protection against potential losses or damages if the principal fails to fulfill their duties.

The surety company, acting as the third party in the arrangement, provides the surety bond. It plays a crucial role by financially guaranteeing the principal’s performance or compliance with the specified terms. If the principal fails to meet their obligations, the surety steps in to compensate the obligee up to the bond’s predetermined amount.

Fidelity Bond vs. Surety Bond

There are pros and cons to think about with the different types of bonds. Fidelity bonds excel at protecting your organization from the financial fallout of employee dishonesty, theft, fraud, or embezzlement.

They provide peace of mind. They may also be a legal requirement, depending on where you are and the field your business works in.

But, fidelity bonds have a limited scope. Fidelity bonds only cover losses arising from employee dishonesty and internal risks, making them unsuitable for addressing other types of financial or contractual obligations.

Having a surety bond, on the other hand, can enhance your competitiveness in bidding for contracts, securing licenses, and entering into agreements, as it demonstrates your commitment to fulfilling obligations.

But, they can be expensive, especially for large projects or high-risk endeavors, so it’s crucial to factor in the cost when budgeting for your obligations.

Fidelity Bond vs. Surety Bond: Now You Know

Fidelity bond vs. surety bond? There are pros and cons to both bond options. The professionals can help you figure out what types of bonds are right for your needs.

Are you ready to work with a trustworthy company? Contact Tom Needham Insurance Company today.