Definition
Fidelity Guarantee
Fidelity guarantee insurance protects an employer against financial loss caused by the dishonesty or fraud of its employees.
When an employee embezzles funds, commits forgery or otherwise defrauds the employer, a fidelity guarantee policy reimburses the loss up to the sum insured. It is valuable for businesses where staff handle cash, stock or sensitive financial transactions.
The cover can be on a named-employee, position-based or blanket (all-employees) basis. Because it addresses a moral hazard, robust internal controls are usually a precondition, and discovery of losses must be reported promptly. It complements burglary and crime covers in a business's risk programme.
Related terms
- Indemnity PrincipleThe principle of indemnity ensures an insured is restored to their pre-loss financial position but cannot profit from a claim, applying to general insurance.
- Moral HazardMoral hazard is the increased risk that arises when being insured changes a person's behaviour, making them less careful or more prone to claim.
- Burglary InsuranceBurglary insurance covers loss of or damage to property from theft involving forcible and violent entry or exit.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.