Define Fidelity Bond
A fidelity bond is a type of insurance that protects a business from certain types of damage caused by employees. This type of insurance is not mandatory in most states and countries, but it does shield a company from huge expenses that are not covered by other policies.
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Eligibility
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Fidelity bonds are only for paid employees of a company. Self-employed individuals and independent contractors cannot purchase a fidelity bond.
Any employee who has federal income taxes withheld from his commissions, wages or salary is eligible for a fidelity bond.
Obtaining a Fidelity Bond
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A company or potential employee may acquire a fidelity bond through most insurance providers. Some state and local governments offer government-sponsored fidelity bonds as well.
The fidelity bond seeker must provide detailed personal and employment information, including anticipated compensation, location of employment and an official statement from the employer.
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Coverage
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Fidelity bonds protect employers from a wide variety of damages caused by an employee's negligence or malicious intent. Fidelity bonds shield employers from damages caused by employee theft, fraud and counterfeiting. They also cover deliberate damage caused by a disgruntled employee, such as arson or dishonesty.
Exceptions to Coverage
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Fidelity bonds do not protect employers from accidents caused by employees. They also do not protect a company from an employee's habitual absence or inability to produce quality results.
Different insurance providers may include or exclude other types of damage from their fidelity bond policies.
Types of Fidelity Bond
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Fidelity bond coverage ranges from a few thousand dollars upward to tens of thousands. Most bonds are between $5,000 and $25,000.
Some local governments encourage companies to employ members of particular demographic groups by offering free fidelity bonds for those individuals. In the United States, most state governments offer this service for people who were convicted of a serious crime and cannot obtain a bond from a private provider.
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References
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