Bond Insurance: Everything You Need To Know

​Although they may seem similar, a bond, unlike an insurance policy, is an agreement with two other parties that can help small companies prove their worth. This article will explain everything you need to know about bond insurance and how it works.

Defining Insurance Bonds
A bond (or surety bond) is a three-way contract between the following parties:

1. The Principal - The party who purchases the bond to help them prove their performance.
2. The Obligee - The party who receives the benefits of the principal.
3. The Surety - The party who guarantees the bond. If the principle fails to hold up the terms of the bond, the surety may step in to fulfill it.

This contract gives the obligee financial security, wherein the principal may hold up with the terms stated in the arrangement to guarantee performance as a small business. If the principal fails to complete the agreement, the obligee can file a claim to recover their losses. 

The insurance company comes in to pay the obligee if the claims are valid. It is expected that the principal may reimburse the amount paid to the surety.

Surety Bond Vs. Insurance
Much like how they work, a surety bond and an insurance policy also differ in their purpose. Insurance is an agreement between a person or a business and an insurance company. The insurance company guarantees the other party compensation for any covered losses or damages.

Meanwhile, a surety bond is a guarantee of performance for the principal. The bond ensures that the principal can fulfill the terms of the contract for the obligee. If the principle fails, the obligee can file a claim to recover losses from the bond. Loss is generally not expected in a bond, so the surety usually gets paid a premium from the principal without paying the obligee.

Types of Bonds
There are many common types of bonds that every business owner might need, such as:

1. Contract Bond - This guarantees the business owner may accomplish all the terms stated in the contract.
2. Fidelity Bond - This bond helps protect your business from losses caused by employees who might commit fraud.
3. Public Official Bond - This bond guarantees that an individual may accomplish the duties of their office, whether appointed or elected. 

What Businesses Need to be Bonded?
Usually, a bond is required when working with government agencies or construction jobs. A bond might also be needed depending on your regulatory and contractual requirements. It is legally required in some states for a business to acquire a bond as well.

Conclusion
A surety bond is an investment that can protect all three parties involved. It also boosts the image of your company as it shows that you can carry out the terms of a contract. Similar projects can also present themselves once your business gets bonded.

At Appletree Insurance, we do our best to ensure that our clients are well-protected with affordable and comprehensive policies. We will make sure to go the extra mile to help you with your needs. To learn more about how we can help you, please contact our agency at (603) 881-9900 or Click Here to request a free quote. Topics and coverage discussed in this article are not guaranteed, consult with your agents to determine what your policy does and does not cover. We are more than happy to help!