Fidelity Bonds, Surety Bonds, and Criminal Insurance. Two important types of insurance available to companies are called

Two important types of insurance available to companies are called

fidelity bonds and surety bonds. While many people think only of natural

perils in connection with insurance, other unplanned losses can be in-

sured. One such type of loss is due to theft and other criminal behaviors

of employees.

Employees who are placed in positions of trust—especially positions

that require handling money, such as cashiers, accountants, bartenders,

and loan collectors—can embezzle or steal large sums of money from

the company. Fidelity bonds protect employers against losses caused by

dishonest and fraudulent acts of employees.

A second type of unplanned loss occurs when a company is unable

to meet the performance terms of a contract. For example, a customer

who asks a contractor to build a new warehouse may lose money if the

warehouse is not completed by some specified date. In this case, the cus-

tomer may ask the contractor to purchase a surety bond, a bond that

provides monetary compensation if the bonded party fails to meet the

performance terms of a contract. If the contractor fails to meet the com-

pletion deadline, the surety bond will compensate the customer for the

face amount of the policy. Without the surety bond, the contractor might

be obligated to compensate the customer directly.

A related type of insurance protects the company against the criminal

acts of others. This is especially important in the case of burglary, rob-

bery, and theft. Each of these perils requires a separate policy, because

the risks differ and require different premiums. Burglary insurance cov-

ers losses when the company’s property is taken by forced entry. If a “cat

burglar” breaks into the premises at night and steals expensive display

items, burglary insurance will cover the loss. Robbery insurance covers

losses when the company’s property is taken by force or threat of force,

such as frequently happens during a holdup of a bank or convenience

store. Theft insurance, which is general coverage, applies to all losses

due to any act of stealing, including burglary and robbery. Note that em-

ployee theft may be covered by either fidelity bonds or theft insurance.

A very important group of insurance policies covers losses due to

sickness, injuries, or deaths of employees. Partners may purchase life

insurance policies that cover them for the unexpected death of one part-

ner. In this section, however, we focus on insurance that provides ben-

efits to employees and their survivors. This type of insurance, called em-

ployee benefit insurance, is for the benefit of employees and is intended

to protect them rather than the company in the event of fortuitous loss.

Employee benefit insurance includes health insurance, life insurance,

and annuities.

Health Insurance. The rising costs of health care have caused great

concern for many Americans and their elected officials, including the

Clinton administration. Although medical research has led to cures and

treatments for many serious illnesses, the costs of treatments may be

excessive. In addition to the direct cost of treatment, employees may

lose wages and other benefits while they are sick. Health insurance is

designed to cover losses suffered by employees due to illness or injury.

These policies typically have a deductible amount which the employee

pays when the loss occurs.

It is common for employers to provide group health insurance cover-

age for employees, in which employees pay part of the premium and the

employer pays the other part. Health policies typically cover hospital,

surgical, and other common expenses. Major medical expenses, such as

those for cancer treatment, are often covered by specific clauses in the

policy. Many policies require coinsurance for some medical expenses,

meaning the insured employee must pay a certain percentage of eligible

medical expenses, such as 20 percent. In addition, certain costly, experi-

mental medical treatments, such as bone marrow transplants, may be

excluded.

Life insurance provides for payment of a stipulated sum to a desig-

nated beneficiary upon death of the insured. Life insurance is one of

the most important investments wage earners can make for their depen-

dents. As long as the primary wage earner is alive, the well-being of his or

her family is reasonably safe. If the primary wage earner dies, however,

the family survivors may be hard pressed to find financial support. Life

insurance, especially for the primary wage earner, is one of the basic

means by which survivors can be assured of a reasonably comfortable

lifestyle.

Social insurance programs are provided by government agencies and

regulations. Generally, these programs are financed entirely by manda-

tory contributions from employers and / or employees rather than by

general (tax) revenues. The contributions are set aside for the social in-

surance

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