Fidelity bond vs surety bond: How much do you know about the differences between the two? Read on to learn more about the differences between them.

Fidelity Bond vs Surety Bond: What Are the Differences?

What do a Surety Bond and a Fidelity Bond do?

Fidelity and Surety bonds refer to trustworthiness. These types of bonds help when the owner of the bond doesn’t pay his employees.

Corporations and government agencies can purchase bonds in case they don’t follow through on what they owe their employees. An employee who doesn’t receive compensation can turn to the courts and claim a bond can resolve the issue.

When companies make an investment, they purchase bonds as a way to mitigate the risk their partners will default on the agreement.

It’s important to understand the difference between a fidelity bond vs surety bond before you incur property or money loss.

While surety and fidelity bonds are similar, they aren’t the same. Here’s a guide to understanding the major differences between the two.

What Is a Fidelity Bond?

A type of insurance that businesses purchase to protect them from losses that may occur as a result of employee dishonesty. Fidelity bonds are also known as surety bonds or dishonesty bonds.

A bond is a contract between the business and the insurance company, and the business agrees to pay the premium for the bond.

If an employee commits an act of dishonesty, such as theft, forgery, or embezzlement, the business can make a claim against the bond and be reimbursed for its losses.

What Is a Surety Bond?

It is a financial guarantee that is typically provided by a bank or insurance company to protect the interests of a creditor in the event that a debtor defaults on a loan or other financial obligation.

The bond essentially acts as insurance for the creditor, in that it reimburses them for any losses sustained as a result of the debtor’s default. In many cases, the surety company will also cover any legal fees incurred in pursuing the debt.

To help you understand more about it, you can visit the online surety bond to learn more information about them.

Parties Involved

They are contracts that have at least three parties. Here are the parties involved:

The Obligee 

A party to a three-party agreement (such as a surety bond) who is protected by the agreement. The obligee is the person or entity who requires the surety bond.

The Principal

It is the company or individual who is being bonded. It is also the major party responsible for carrying out the assigned obligations.

The Surety

This is the party that provides the bond. The surety agrees to indemnify the obligee for any losses incurred as a result of the principal’s failure to perform on the bond.

Understanding Fidelity Bond vs Surety Bond

It is now clear to you the difference between Fidelity Bond vs Surety Bond, even though they are both types of agreement. A fidelity bond is a bond that is used to protect the insured from losses that may occur due to the dishonest acts of an employee.

A surety bond, on the other hand, is a bond that is used to protect the obligee from losses that may occur due to the default of the principal.

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