What is a fidelity bond?

What is a fidelity bond?

• A. A type of insurance that protects against losses from employee fraud
• B. A guarantee for performing contractual duties
• C. A shared investment agreement for employees
• D. A retirement savings plan for employees

Answer: (A)

A fidelity bond is designed specifically to protect a business from losses caused by dishonest acts, such as theft or fraud, committed by employees. It serves as a form of insurance that reimburses the employer for losses incurred as a result of employee misconduct. This type of bond is particularly relevant for businesses that handle large amounts of cash or valuable assets, where the risk of employee dishonesty can significantly impact their financial stability. In contrast, the other options describe different financial instruments or arrangements. For instance, a guarantee for performing contractual duties relates to ensuring obligations are met according to an agreement but does not cover employee misconduct. A shared investment agreement for employees pertains to profit sharing or employee stock ownership, which is a different concept altogether. A retirement savings plan is focused on providing employees with a method for saving for retirement, not protecting against fraud or theft. Thus, the definition of a fidelity bond aligns precisely with the nature of employee fraud protection, making it the correct choice.

A fidelity bond is designed specifically to protect a business from losses caused by dishonest acts, such as theft or fraud, committed by employees. It serves as a form of insurance that reimburses the employer for losses incurred as a result of employee misconduct. This type of bond is particularly relevant for businesses that handle large amounts of cash or valuable assets, where the risk of employee dishonesty can significantly impact their financial stability.

In contrast, the other options describe different financial instruments or arrangements. For instance, a guarantee for performing contractual duties relates to ensuring obligations are met according to an agreement but does not cover employee misconduct. A shared investment agreement for employees pertains to profit sharing or employee stock ownership, which is a different concept altogether. A retirement savings plan is focused on providing employees with a method for saving for retirement, not protecting against fraud or theft. Thus, the definition of a fidelity bond aligns precisely with the nature of employee fraud protection, making it the correct choice.