What’s a Loyalty Bond?

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Loyalty bonds are a type of insurance that covers employers against losses caused by fraudulent acts by their employees. Employers can purchase coverage from $5,000 to $25,000 USD for high-risk employees, and the insurance has no deductibles. The employer must provide a formal job offer to obtain coverage. Loyalty bonds create a win/win situation for employers and workers, as it serves as an incentive for employers to hire people who might otherwise be denied employment.

In today’s world, it is possible to take out insurance against almost any type of loss or damage. A loyalty bond is a type of insurance that covers policyholders against losses incurred as a result of malicious acts by certain persons. A bond of loyalty often takes the form of business insurance, insuring employers against losses caused by fraudulent acts by their employees. Securities companies are among the types of companies required to hold loyalty bonds.

Any employer that withholds federal income taxes from the wages of its employees who wishes to purchase a loyalty bond can do so, in order to protect itself against losses incurred while hiring high-risk employees. Loyalty bonds work as follows. First, the value of the property at risk is assessed, and loyalty bond coverage is issued in amounts from $5,000 to $25,000 USD, in increments of $5,000 USD. The insurance provided by Loyalty Bonds has no deductibles and becomes effective on the first day the high-risk individual is hired by the company. Loyalty bonds initially expire after six months, but employers are able to purchase additional coverage after the six-month expiration.

In order to obtain a loyalty bond for a prospective employee, the employer typically must write a letter containing a formal job offer. The letter must be on official company letterhead and must contain detailed information about the prospective employee, the job offered, start date, rate of pay, and other employment-related information. The letter also describes the amount of coverage the employer needs and a justification for the amount, if it exceeds $5,000 USD. This letter must then be approved by the authority issuing the loyalty bond in order to obtain coverage.

The bond of loyalty creates a win/win situation for employers and workers, as it serves as an incentive for employers to hire people who might otherwise be denied employment and to do so with minimal personal and professional risk. Examples of workers who might be considered risky to employers might include former drug addicts, individuals with poor credit history or public assistance recipients, or those who have received a dishonorable discharge from service in the military. Loyalty bonds make it easier for these people to find new opportunities and a second chance at gainful employment.




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