Understanding Types of Financial Bonds

The financial industry relies heavily on bonds for risk management, and the ones used in this sector of business are unique to the type of financial business buying them. Like the bonds used by the construction industry, financial bonds cover liability exposure that would be cost inefficient if covered by a traditional insurance policy. Before you purchase bonds for a business, it is vital you understand the full range of its activities because some companies do need coverage designed for more than one type of financial business due to their wide ranging financial activities.

Breaking Down Bond Types

Here are the major divisions in financial industry bonds:

  • Form 14 bonds protect investment banks, stock exchanges, brokerages, and similar businesses
  • Form 15 is used by loan and small business finance companies
  • Form 24 covers commercial banking nationally and foreign banks operating in the U.S.
  • Form 25 is used by insurance companies

Regardless of the form used, all these financial bonds protect from the same range of activities by employees. They’re also called fidelity bonds because the activities they protect against are typically embezzlement, theft, fraud, or other issues of employee honesty. The coverage provisions in each form also need to be customized to suit the level of a company’s exposure in different areas of risk and the number of employees covered. As a result, the best way to talk specifics about cost and coverage limits is by seeking a quote.