Alabama Property and Casualty Practice Exam

Fidelity Bonds are used in connection with?

1. Employee errors and omissions

2. Employee absences

3. Employee negligence

4. Employee theft

The correct answer is: Employee theft

Fidelity bonds are specifically designed to protect businesses from losses that occur due to dishonest or fraudulent acts committed by employees, particularly theft or embezzlement. When an employee steals money or property from the employer, fidelity bonds provide a financial safety net, covering the losses incurred. This type of bond ensures that the business can recover some or all of its losses, thereby promoting a level of trust and security in the workplace. While options related to errors, omissions, and negligence might seem relevant regarding employee conduct, they don't relate specifically to fidelity bonds. These bonds do not cover mistakes or negligence in job performance or duties; they are solely focused on fraudulent actions. Hence, fidelity bonds are not about employee absences either, which can relate to different types of insurance or company policies. The primary purpose of a fidelity bond is to address the risk associated with employee theft, making it a critical component for businesses that want to safeguard their assets against potential internal threats.