What is bond insurance?
A bond is an agreement between the 'Surety' (Bond company), the 'Obligee' (The business/entity which requires the bond), and the 'Principal' (you.) A bond replaces the your financial backing with that of the Surety—meaning that in the event of a default or failure to deliver on your part, the damages will be paid by the Bond Company. This assures the Obligee that they will have some recourse to recoup these damages in such an event. The Surety will then seek to recoup their losses from the Principal (you.)
In other words, the Surety is taking on the financial risk in the event of a default, or failure to deliver on a contract, but you would still ultimately be on the hook for such penalties. This is where Bonds differ from Insurance.
Most Common Types of Business Bonds
, also known as Contractor Bonds, are perhaps the most common bonds we deal with. These bonds are often required by local and state government agencies in order for a contractor to become licensed to do business in their jurisdiction. For example, taking out a Contractor Bond naming the City as the Obligee is part of the process a Residential Plumber must go through in order to get licensed to do business within the City of Lancaster.
are bonds that guarantee that the Obligee will have a means of compensation if the Principal (you) are unable to start or perform a project that you've successfully bid. The amount of coverage required for the bond varies per project, and the cost or even the ability to secure a bid bond will depend on the strength of the Principals financial situation (e.g., credit worthiness, current assets, etc.) Bid Bonds are often required in order for a contractor or business to even submit the bid for a project. If the job is awarded, the Bid Bond will convert to a Performance Bond (see below).
guarantee that the Obligee will have a means for compensation should the Principal (you) fail to adhere to the terms of the contract, or fail to complete the contract. Examples of this include construction that does not meet previously established guidelines, faulty work, or a failure to complete the project altogether.
Janitorial Service Bonds
are common in the cleaning and janitorial industry, but are not limited to those industries alone. These bonds protect the owner of a business (you), and more importantly, your customers, against loss due to employee theft. The cost of these bonds will depend on the number of employees you have, and the amount of coverage desired, but are a great way for you to show your clients that you care about protecting them. Advertising the fact that your business is bonded can even be a great way to stand out from the competition.
are bonds are required to be carried if your business sells lottery tickets, or uses lottery equipment. These bonds are meant to protect the State against mishandling of lottery funds or the tampering of lottery tickets and equipment. They also protect the consumer against tampering of lottery games.