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The Ultimate Guide To Fidelity (Crime) Insurance for HOAs in Utah

Even though insurance is becoming a vital necessity for many, it’s a very complicated and confusing industry, especially for buyers. As a premium agent of high-quality insurance providers, Looshki is making a dedicated effort to uncomplicate some of the most important insurance information that policyholders should know. These tips and explanations are designed to offer a general understanding of insurance, and if you have specific questions about purchasing new insurance, or about a policy you currently hold, we encourage you to call us (or a local, trusted insurance agency if you’re outside of Utah) and let us go through all of your needs to make sure you’re completely covered.

What is Fidelity Insurance?

In the simplest terms, fidelity insurance, also called fidelity bonds, protects an organization from employee theft. Theft can come in many forms, it might be money, property, or forgery. Fidelity insurance guarantees that if an employer suffers any loss due to employee dishonesty, the insurer will share that loss as long as they are within the limitations stated by the contract. Fidelity bonds are most often held by insurance companies, banks, and brokerages that are required to carry protection for their net capital. However, there are lots of businesses that carry this type of insurance to protect them from employee dishonesty.

Because Fidelity insurance isn’t a legal requirement (like car insurance is in some states, for example), every policy will differ. There is no ‘one-size-fits-all’ or even ‘one-size-fits-some’ policy template that insurers will follow. Different HOAs will need different things covered, so it’s incredibly important to work with your local professionals to understand your association’s needs specific to your governing documents and state laws, out purchasing new insurance, or about a policy you currently hold, we encourage you to call us (or a local, trusted insurance agency if you’re outside of Utah) and let us go through all of your needs to make sure you’re completely covered.

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Fidelity bonds protect the finances of the community at large and those responsible for handling the finances.
Example: Board Members, Property Management Team

 A fidelity bond is a form of business insurance that offers an employer protection against losses that are caused by its employees’ fraudulent or dishonest actions.
Example: Stealing money from the company account.

A fidelity bond is one of the only policies that will protect the money you have against employees' dishonest actions, rather than protecting your business or your people.
Example: D&O insurance protects your board members directly against lawsuits, versus a Fidelity bond which protects the money those board members handle.

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Why is it called a bond?

Insurance is typically there to help protect against lawsuits, a bond exists to help recoup lost assets or monetary loss. While you may have other insurance policies in place to protect your business from fires and other types of disasters, those policies don’t protect your business’ hard-earned money. So, a fidelity bond is a form of business insurance that helps your organization get back what it has lost.

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What an Fidelity Insurance Policy IS

Tax-Deductible

While you’ll want to check with your CPA to confirm, in most cases all insurance for an HOA can be tax-deductible.

Assessment-Funded

Though the Board of Directors is the policyholder, they do not pay out of pocket for the coverage. Costs associated with insurance for the HOA are covered by the assessments homeowners pay.

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What an HOA Fidelity Insurance Policy Is NOT

Fidelity Insurance is NOT the same as an Umbrella Policy. Umbrella coverage offers comprehensive liability coverage to the association and does not offer any kind of reimbursement of liquid assets lost to fraud, embezzlement, or other forms of theft.

Directors & Officers, or D&O coverage, protects the Board of Directors from lawsuits filed in response to a particular decision and its results.

While also a fidelity bond, these specifically refer to the Employee Retirement Income Security Act (ERISA) which set forth minimum federal standards for pension plans in private industry. HOAs and Condo Associations do not need this type of fidelity bond.

 

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What to Ask When Shopping for a Fidelity Policy for your HOA

When shopping for a policy, the most important thing to remember is that the possibilities are truly endless. Protection exists for just about every scenario you can imagine, and then some--the trick is to make sure YOUR policy names that specific protection. Each policy can have its own limits, deductibles, and limitations.

Make sure your policy covers:

  • Theft, robbery, or destruction of money while in transit. Also known as Transit Coverage.
  • Loss stemming from forging or altering a financial statement.
  • Loss stemming from a computer virus (cybersecurity coverage).
  • Loss stemming from computer fraud or unauthorized access to the HOA’s system.

Ask how much the bond will cover. There is no universal dollar amount that applies to all homeowners associations. You will need to assess the size of your association and how much money you manage. 

Make sure to check your state's applicable laws. In some states, like California, associations must acquire fidelity insurance. Those states may have additional requirements such as the minimum coverage limit.

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Frequently Asked Questions

There are no federal laws requiring any association to have Fidelity Bond coverage, however, your state may have its own individual laws, such as the Davis-Stirling Common Interest Development Act in California. Additionally, your condo or HOA governing documents could specify Fidelity insurance as a requirement, so even if there are no requirements in your state, you must still abide by the rules in your CC&Rs. Be sure you read your documents and brush up on your state requirements.

The limits can, and should, vary depending on how much money the HOA has.

 In a Fidelity insurance policy, a Retention is the equivalent of a deductible.

This typically happens due to a lack of coverage, such as the person found guilty of the fraudulent action not being covered under the policy. For example, if the policy only covers the president of the HOA and a member of the board committed the fraud, the insurance provider would deny the claim.

If a claim is denied by the insurer, the responsibility for payment of the associated fees would revert back to the person or board being sued.

When building a fidelity bond policy, up-to-date financials are needed in order to make sure the correct amount of coverage is in place. Coverage will typically be based upon the expected funds to be collected from assessments over the next 1 - 2 years. So you don’t want to pay for $200,000 in coverage if the homeowners association only expects to collect $150,000 in assessments in that time.

Fidelity insurance coverage is determined by two factors: the coverage amount, and the number of people covered. As stated above, the bond should be able to cover the next couple of years’ worth of incoming assessments. Whoever has access to the funds in the community is covered, the more who have access the higher the premiums will be, and the higher the converge amount the higher the premium.

Any volunteers who have access to the community finances should be included in coverage.

Blanket Fidelity Bonds offer coverage written with a per loss limit rather than a per employee or per position limit.

No. While the terms are sometimes used interchangeably, employee dishonesty insurance specifically covers employees. Most HOAs are volunteer-led and do not have paid staff. Therefore they would require a Fidelity Bond.

No. While Employee Dishonesty offers coverage for theft of money, securities, or property, it is specifically aimed at paid employees of a business or corporation.

This does not actually apply to HOAs or Condo Associations. A traditional Fidelity Bond occurs because a third party (typically a bank) requires a contractor to obtain the coverage. So Third-Party Fidelity Coverage refers to that request made by a third party to have the bond. HOAs can bypass that requirement and just get a Fidelity Bond at any time.

While also a fidelity bond, these specifically refer to the Employee Retirement Income Security Act (ERISA) which set forth minimum federal standards for pension plans in private industry. HOAs and Condo Associations do not need this type of fidelity bond.

No. They can sometimes be packaged together through an insurance provider, however, they are completely separate policies.

Different states have different laws. Utah in particular does not but you should check with your state legislation. For example, California associations must acquire fidelity insurance.

Crime insurance is another name for fidelity insurance. Fidelity insurance goes by a lot of different names: crime insurance, employee dishonesty coverage, fidelity bond, crime bond, or surety bonds.

Premiums are determined by the number of people accessing funds, and by the amount of requested coverage.

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Buying Fidelity Coverage for Your Homeowners Association

Remember, this is a lot of information, but it only scratches the surface of what a comprehensive policy can do to protect your community. It is important that you seek out local professionals to go over any coverage you may currently have, the needs your community is most likely to face, and find where any gaps exist that can be filled before it’s too late. 

If you’re looking for Fidelity insurance in the state of Utah, call Looshki today for a free consultation with one of our insurance representatives to learn more about how we aggregate only the best policy providers to fit your needs.

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Why Choose Looshki?

There is a great irony that comes with choosing an insurance agent. In attempting to protect yourself from risk, you are taking a risk in which agency you choose. Like a soldier standing at the gates, insurance is your last line of defense, should the worst happen. And like those soldiers, if we fail at our job, it’s already too late by the time you find out.

At Looshki Insurance Group, we help mitigate your risk by working directly with you to understand your unique needs. We connect you with a wide range of major providers to find the policy that best meets your needs (and your pocketbook). If you have any issues, we are your primary point of contact, working tirelessly as your advocate to make sure you are taken care of.

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