What is bond insurance?
An issuer of a bond can purchase bond insurance to guarantee scheduled payments of interest and principal on the bond to its bondholders in case the issuer defaults. Once the issuer purchases bond insurance, its credit rating is replaced with the insurer’s credit rating. Premiums are a measure of the perceived risk of failure of the issuer and are paid to the insurer in either lump sums or installments.
What are the benefits of being bonded?
Being bonded gives issuers the ability to leverage business growth. With the increased stature of having the insurer’s credit rating, a business can feel safer in taking risks to improve and grow the business. This is especially true in the construction and financial industries.
A bonded business can obtain unbiased criticism from a credit professional and seek advice in underwriting projects.
Some bonds we handle include, but are not limited to, the following:
Contract Surety Bonds
Contract Surety Bonds are bonds that the government or an owner of a construction project may require a contractor to obtain. There are three types of contract surety bonds:
- Bid bond – Affords protection to a project owner (obligee) in the event a successful bidder will not enter a contract and will not provide the required surety bonds or other security
- Performance bond – Provides protection to the obligee if the contractor defaults on its obligations under the bonded contract
- Payment bond – Guarantees that the contractor will pay subcontractor, labor and material bills associated with the construction project.
Commercial Surety Bonds
Commercial Surety Bonds are required of individuals or businesses by the government, legislation or by other entities. Travelers Bond & Specialty Insurance provides the following types of commercial surety bonds:
- License and permit bonds – required by state, municipal or federal ordinance or regulation. These bonds may be required as a condition for engaging in a particular business or exercising a particular privilege. Examples include performance and payment bonds, customs bonds, tax bonds and warehouse bonds.
- Court bonds, including:
- Judicial bonds, required of either a plaintiff or defendant in judicial proceedings, to reserve the rights of the opposing litigant or other interested parties
- Public official bonds – required by statute for certain holders of public office to protect the public from malfeasance by an official or from an official’s failure to faithfully perform duties
- Miscellaneous bonds – Bonds that do not fit into any of the other categories above
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