Fidelity Guarantee Insurance Overview:
Leading insurance companies offer an innovative product called fidelity bond/guarantee insurance. This type of insurance is basically a contract of insurance and guarantee. The standard principles of general insurance is not applicable to fidelity bond/guarantee insurance, and this makes the product really unique.
Though it is impossible for fidelity guarantee insurance to ensure that every employee in the organisation is completely honest yet it does compensate the organisation for any financial loss incurred as a result of dishonest activities conducted by employees. Please note that the organisation will be compensated for the financial loss undergone, only within the stipulated limits (as stated in the policy wordings) of the insurance policy.
Benefits of Fidelity Bond Insurance:
As this insurance protects organisations from any financial loss suffered as a result of acts of dishonesty conducted by an employee, it is of utmost importance for every company to but this policy. The benefits of holding a called fidelity bond/guarantee insurance policy have been stated below –
- As an organisation which employs different kinds of people, nobody can take guarantee that they will be completely honest throughout their employment tenure. It is pretty common for certain employees to indulge in acts of dishonesty and forgery and harm the company in turn. This insurance policy safeguards the company from financial losses arising due to forgery, money misappropriation (defalcation), embezzlement, and other dishonest acts by employees. These situations usually arise due to misuse of the employment capacity by cashiers, accountants, etc.
- Fidelity guarantee insurance assures that as an organisation your hierarchy is maintained and your employees are weary of performing any malpractices.
- It protects the reputation, standing and employee reputation and the employer.
- It ensures absolute transparency in accounts checking and standard supervision within the organisation.
Fidelity Insurance covers:
As per this insurance policy the insurer covers the insured organisation against a pecuniary loss (only if it is direct) due to acts of fraud/dishonesty conducted by any employee, under the following situations –
- You will be entitled for coverage on and after the day the insurance policy commences.
- Coverage shall also be provided during unhindered service with the organisation, and its discovery during the existence of the policy. This is also valid within a year/12 calendar months of the policy expiration.
- In case of demise, termination or retirement of the employee with 12 calendar months of such an event; whichever event occurs earlier.
- Depending on the requirement of this cover being applicable to a single employee or a group of employees there are three types of plans, namely individual policy, collective policy, and floating policy.
Fidelity Guarantee Insurance Policy Exclusions:
- The called fidelity bond/guarantee insurance doesn’t provide coverage for –
- There is no coverage for any consequential loss, unlike a pecuniary loss.
- If the loss incurred is not in terms of finances or goods of the organisation, then it isn’t covered.
- The act of dishonesty by the employee should be committed during the tenure of the specified duties.
- If an employee under the policy had quit the organisation earlier, but was re-employed again, any loss resulting out of this act will not be covered (if the consent of the insurer hasn’t been obtained before reappointing him).
- If the loss has been incurred due to wrong/bad accounting process, and not as an act of dishonesty; it is not covered.
Types of Fidelity Guarantee Insurance:
- Individual Policy - This policy provides coverage to an individual for a stipulated amount.
- Collective Policy - This policy provides coverage to a group of employees. It depends on the organisation to place the guarantee amount on each employee (depending on their position and job roles).
- Blanket Policy – Sometimes an organisation buys the policy not by naming individuals to be guaranteed, but on the basis of groups/categories/teams. It could usually be accounts team, store-keeping team, clerical team, etc.
- Floater Policy – Only one amount is depicted in the policy. This is representative of the Insurer’s liability. This is valid in context to one person and also total liabilities of the entire set of guaranteed employees. The minimum number of guaranteed individuals required to avail this policy is 5.
The limit for each employee can be either fixed independently or together in a group. In either case, the compensation for any loss incurred will be provided only up to the stipulated limit as mentioned in the policy contract. The higher the limit (depending on the need), the better it is for the organisation and the employees.
Fidelity Insurance Claims Process:
To settle a fidelity bond/guarantee insurance claim, the organisation must inform the insurance company immediately about any act of fraud conducted by any employee. It should immediately suspend/default/take disciplinary action against the employee depending on the situation. The ‘act of infidelity’ must be furnished with every possible proof, indicating the same. If the loss incurred has come into light only during the time of stock-taking, or due to some security failure, the insurance company is not liable for the same. To settle the claim, you must provide a “proof of loss” to the insurance company stating the amount of recovery.
A forensic audit must be done, and the cost of paying these auditors is also included the cover. These auditors shall verify and approve the amount lost by the insured. Please note, that coverage is not provided to the policyholder’s overhead and in-house expenses.
It is a universally known fact that such high profile frauds are extremely complicated, and that is the reason the policyholder is required to furnish the insurance company with so much proof. It is the policyholder’s responsibility to ensure investigation, forensic audit, accounts tallying, flawless documentation, and other proofs substantiating the claim of financial loss.
Hence, to settle a fidelity bond/guarantee insurance claim without any hassle, an organisation must be adept at the following -
- Proof of Loss
- Law Enforcement Liaison
- Forensic Accounting