Bonds insurance is an essential aspect of risk management. It can provide a financial safety net for both businesses and individuals, mitigating fiscal risks and compensating affected parties for losses due to unfulfilled obligations. At Elliott-Hartman Insurance Services, we’re well-equipped to help explain and explore bonds insurance options.
How Do Bonds Work?
In the context of insurance, bonds are essentially contracts used to protect the economic interests of parties that enter into financial or business agreements with one another. It should be noted that while often referred to as bonds insurance, these loss control instruments function differently than traditional insurance policies. While the former is typically purchased for a specific contract or job, the latter can provide ongoing financial protection throughout the period of coverage.
What Are Surety Bonds?
Surety bonds are a loss control instrument often used in construction projects or other large contracts. There are many types of surety bonds, including commercial bonds, contract bonds and permit bonds, but these arrangements generally entail an agreement between the following three parties:
- The obligee, often a client or project owner, assesses their risk levels and determines if they will require surety bonds.
- The principal, such as a contractor or business, is responsible for purchasing surety bonds should the obligee deem it necessary.
- The surety, such as an insurance company, underwrites and maintains the bonds.
If the principal cannot deliver as promised, the obligee can recoup their losses through surety bonds. The surety may then seek to recover its own losses from the principal.
What Are Fidelity Bonds?
Fidelity bonds, also known as honesty bonds, are another common type of bond and may financially protect businesses from losses caused by fraudulent or dishonest acts of their employees. This functionality makes fidelity bonds a potentially valuable investment for companies that dispatch employees or contract workers to clients’ locations, such as cleaning services and locksmithing businesses.
Fidelity bonds can generally help clients recoup losses should a business’s employees commit the following acts:
- Fraudulent transfer of funds
Why Are Bonds Important?
Bonds play a crucial role in many aspects of business and finance. Consider the following advantages of having the right bonds:
- Risk mitigation—Bonds can provide a form of financial protection, potentially ensuring that obligations are met even if the principal fails to fulfill them.
- Trust and confidence—Bonds can help build trust between parties in a contract, as they may provide assurance that obligations will be met.
- Compliance—Many industries and contracts require bonds before a business can open or bid on contracts.
We’re Here to Help
With a history of service dating back to 1959, the team at Elliott-Hartman Insurance Services stands ready to assist businesses in understanding and procuring the right bonds. Contact us today to learn more.
This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.