Why Buy Crime Insurance Versus a Crime Bond
Protecting your business from financial loss due to theft, fraud, and dishonesty is more critical than ever. Many organizations evaluate crime insurance vs crime bond options, but understanding which solution offers the most complete protection can make a significant difference in long-term financial security.
Insurance and bonds provide coverage for different purposes. At first glance there does not seem to be much of a difference. Thus confusion between Crime Insurance (Fidelity Insurance) and a Crime Bond (Fidelity Bond) arises. A crime bond is substantially less expensive than crime insurance so why not just get a fidelity bond?
Crime insurance and bonds can be a requirement for doing business with an entity. So what is the difference?
What Is a Crime Bond?
A crime bond involves three parties:
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- Obligee (the insured) – This is the party protected by the bond. They are usually the employer or a 3rd party doing business with the entity seeking protection from dishonesty or fraud. The obligee normally requires a bond for the obligee’s protection.
- Principal (the bonded party) – This is the individual or entity whose actions the bond covers. If the bonded party commits a dishonest act (like theft or embezzlement) the bond provides a guarantee of reimbursement to the obligee.
- Surety (the bonding company or insurer) – This is the party that issues the bond and guarantees reimbursement to the obligee if the principal commits a covered dishonest act. If the surety pays out a claim, they may then seek reimbursement from the principal.
Bonding companies do not plan on losing any money even if the bonding company pays for a party’s dishonest act. Typically the bonding company will only issue a bond if the bonding company believes that the principle has the assets to reimburse the bonding company. If the principal cannot provide proof of assets to the limit of the bond, the bonding company will refuse to issue a bond. Bonds typically only guarantee the actions of the principal. The bond provides no coverage for other parties that may commit dishonest acts against the obligee.
Key Features of a Crime Bond:
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- Covers internal threats only (employee-related fraud) [fastercapital.com]
- May be legally required in regulated industries [swiftbonds.com]
- Typically structured to meet compliance standards
While crime bonds are valuable, they are limited in scope—focusing primarily on internal risks.
What Is Crime Insurance?
Crime insurance is a two party contract:
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- The Insured (employer or business owner) – This is the party protected by the insurance for a dishonest act.
- The Insurer – The insurance company issues the insurance policy. If a covered dishonest act is committed than the insurer makes the insured whole. Depending on the crime policy endorsements crime insurance covers dishonest acts of employees and 3rd parties. Policy limits depend on the insured’s needs not the assets of a principle. Crime insurance policy limits can be in the millions of dollars. The insurer does not have an expectation of reimbursement from the dishonest party.
Crime insurance is a broader form of protection that covers both internal and external criminal acts. [carvofinan…lgroup.com]
This type of policy typically includes coverage for:
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- Employee theft and fraud
- Burglary and robbery
- Forgery and alteration
- Computer fraud and funds transfer fraud [carvofinan…lgroup.com]
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Unlike a crime bond, crime insurance is designed to address the evolving risks modern businesses face—especially in a digital and interconnected environment.
Crime Insurance vs Crime Bond: The Key Differences
| Feature | Crime Bond (Fidelity Bond) | Crime Insurance |
|---|---|---|
| Coverage Scope | Employee dishonesty only | Internal and external crime |
| Requirement | Often mandatory | Typically optional |
| Risk Protection | Narrow | Broad |
| Cyber/External Fraud | Usually not covered | Often included |
| Flexibility | Limited | Highly customizable |
The biggest distinction is simple:
Crime bonds cover internal threats, while crime insurance covers both internal and external risks. [swiftbonds.com]
Why Buy Crime Insurance Instead of a Crime Bond?
1. Broader Protection Against Modern Threats
Crime insurance provides coverage beyond employee theft, including burglary, forgery, and cyber-related crimes. [fastercapital.com]
In today’s environment, where cybercrime and third-party fraud are increasing, this broader protection is essential.
2. Protection from External Criminal Activity
Unlike crime bonds, crime insurance protects against outside actors, such as hackers, vendors, or thieves. [fastercapital.com]
This is critical for businesses operating online or handling digital transactions.
3. More Comprehensive Risk Management
A crime insurance policy typically bundles multiple risk scenarios into one solution, helping businesses:
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- Reduce coverage gaps
- Simplify risk management
- Improve financial resilience
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4. Flexibility to Match Your Business Needs
Crime insurance policies can often be customized to reflect your company’s risk exposure, including coverage limits and specific crime types.
5. Complements (or Replaces) a Crime Bond
In many cases, businesses carry both:
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- A crime bond for compliance
- Crime insurance for comprehensive protection
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However, if your business is not required to carry a bond, crime insurance may offer a more complete standalone solution.
When a Crime Bond Still Makes Sense
While crime insurance offers broader protection, there are situations where a crime bond is still necessary:
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- Regulatory or legal requirements
- Contractual obligations with clients
- Employee benefit plan compliance (e.g., ERISA)
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In these cases, a crime bond ensures compliance, while crime insurance fills in coverage gaps.
Final Thoughts: Which Should You Choose?
When evaluating crime insurance vs crime bond, the right choice depends on your business needs.
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- Choose a crime bond if you need to meet legal or contractual requirements.
- Choose crime insurance if you want comprehensive protection from both internal and external threats.
- Consider both for maximum protection and compliance.
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Ultimately, crime insurance offers a modern, flexible, and scalable solution that aligns with today’s risk landscape—making it the preferred choice for many businesses.
Contact Us for Crime Insurance Information
Contact Me Today
Lee Norcross, MBA, CPCU
California License # 0D87292
L Squared Insurance Agency, LLC ® DBA in California as L2 L Squared Insurance Agency, License # 0L93416
Managing Director, CEO
Lee@L2Ins.com
616-726-7080
