Canadian Accredited Insurance Broker (CAIB) Three Practice Exam

What type of bond protects employers from dishonest actions of employees?

1. Insurance Bond

2. Surety Bond

3. Fidelity Bond

4. Performance Bond

The correct answer is: Fidelity Bond

A fidelity bond is specifically designed to protect employers from losses caused by dishonest actions of their employees, such as theft, fraud, or embezzlement. It serves as a financial safety net, compensating the employer for the wrongdoing of an employee, thereby reducing the risk involved in trusting employees with financial transactions or sensitive information. The distinction of fidelity bonds from other types of bonds is important to understand. For example, an insurance bond is more of a general term and doesn't specifically focus on employee dishonesty. A surety bond is typically used to guarantee that a party will fulfill a contractual obligation, and a performance bond secures the completion of a project according to the terms of the contract, which is unrelated to employee behavior. Therefore, fidelity bonds are uniquely tailored to address the risks associated with employee dishonesty, making them the appropriate choice for protecting employers in these situations.