What does a fidelity bond protect against?

A fidelity bond primarily serves the purpose of protecting organizations from financial losses caused by fraudulent acts committed by specific individuals, typically those who are in positions of trust or handling company funds, like employees or officers. When an organization purchases a fidelity bond, it essentially transfers the risk of loss due to such fraudulent activities to the bond issuer. This means that if the company suffers a financial setback due to actions like embezzlement or theft carried out by these designated individuals, the bond can provide compensation for the losses incurred.

In contrast, other options such as market fluctuations, employee misconduct outside of fraud, or general investment losses do not fall under the protection of a fidelity bond. Market fluctuations relate to changes in investment values due to economic conditions, which are typically addressed through investment strategies rather than bonds. Employee misconduct, while serious, encompasses a broader range of behaviors that may not involve theft or fraud directly affecting the finances of the company in a manner bond coverage would address. Similarly, investment losses are inherently part of the risks associated with managing assets and are usually managed through diversification and careful investment choices rather than being covered by a fidelity bond.