How Do Bonds Protect Financial Institutions?

How Do Bonds Protect Financial Institutions?

There are a few industries where bonds are the standard risk management tool for a variety of situations, rather than an alternative used by some companies innovating to keep costs down. In each of these industries, the bond coverage works differently. In the case of financial institution bonds, there are enough different needs among companies in different niches that the industry has several forms to be sure bonds can be written to suit the wide range of company sizes and financial services they provide. Banks and other financial institutions do purchase insurance coverage for many risks in addition to these bonds, but the bonds represent the most cost efficient way to cover certain liabilities.

Customized Bond Coverage Against Employee Dishonesty

There’s a long list of specific risks and conditions for financial bonds, but in general the industry uses them to protect against bad faith actions by employees, including dishonesty and theft. Specific coverage provisions narrow things down so you can buy just the coverage you need, whether it’s mortgage origination fraud protection, theft from clients, embezzlement, or any of the range of other possibilities. Depending on your coverage goals, the bond can be written to protect you, your clients, or both, depending on the kind of dishonest actions covered. In some cases, you can also get bonds that cover errors, incompetent actions, and other liabilities that fall outside employee fidelity but have similar consequences.

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