Surety Bonds | Fidelity Bonds | ERISA Bonds

What exactly is a bond?

If you’re a business owner and you’re looking into bonds because you were asked to provide one, here’s what you need to know:

  • There are three parties involved: you (the principal or obligor), the insurance company (guarantor), and the entity who will receive the product/service (obligee).
  • The bond is not about you! It is NOT there for your benefit! It is there to make the obligee whole if you fail to meet your obligation (as specified when the bond is issued). If that happens, the insurance company pays the claim to the obligee and then turns around and requests that you back the full amount it paid out.
  • A bond is NOT insurance. Not only is it not there to protect you, but the criteria for issuing a bond are completely different. The premium you pay for the bond is a fee for the guarantee itself. It is not intended to cover any losses (this is why you sign an indemnity agreement stating you have to pay back any paid claims). A bond will not be issued to you unless the insurance company has determined that you have the capacity to pay back any claim they may pay out.

In the insurance world bonds come in a lot of flavors but here are the main types:

Surety Bond (Performance Bonds)

Surety bonds guarantee that specific obligations will be fulfilled by the principal. If the principal defaults, the insurance company must perform the contract, duty, or obligation of the principal, or indemnify the obligee for actual loss.

Contract Bonds

Contract bonds guarantee that contractors perform according to a construction contract. Used in the construction industry by general contractors, they are a guarantee to a project’s owner that the general contractor will adhere to the contract put in place. If a contractor fails to perform according to the contract, the Surety is responsible to the Obligee for the bond limit, which usually equals the value of the completed contract. The following types of contract bonds may be required in connection with a contract:

Bid Bond

A guarantee that the contractor making the bid will, upon acceptance of the bid by the contractor’s customer (obligee), proceed with the contract and replace the bid bond with a performance bond. Failure to do so results in default and the surety will pay the contractor’s customer (obligee) the difference between the contractor’s bid and the next highest bid.

Performance Bond

A guarantee that the contractor will perform, as agreed in the contract. If the contractor defaults, the surety will pay the obligee the value of the bond, which is usually the value of the contract.

Labor and Materials Bond

A guarantee that bills for labor and materials called for in a construction contract will be paid when due. This bond can be written separately or as part of a performance bond.

Court Bonds

Required by the court to enforce certain behavior. There are two types of court bonds:

Judicial Bonds

They guarantee that certain parties fulfill their statutory obligations in connection with court proceedings

Fiduciary Bonds

They guarantee the honest and faithful performance of executors, trustees, and other fiduciaries. This type of bond is often required by statute in order to protect the interests of those for whom the fiduciary acts.

License and Permit Bond

A bond required by municipalities or other public bodies as a condition for granting a license or permit to engage in a specific activity. The bond guarantees that the party seeking the license or permit will comply with applicable laws or regulations. Examples include:

Contractor’s License Bonds

Guarantees that a contractor complies with laws pertaining to his/her trade

Tax Bonds

Guarantee that a business complies with laws pertaining to the payment of taxes

Broker’s Bonds

Such as insurance, mortgage, or title agency bonds guarantee that the broker performs according to law

Motor Vehicle Dealer Bonds

Guarantee that the dealer performs according to law.

Lost Title Bond

They provide a proof and guarantee of ownership to the Department of Motor Vehicles. When no other form of documentation is available a Lost Title Bond shows the DMV that you are the “owner” of said vehicle.

Fidelity Bonds (Honesty Bonds/ERISA Bonds)

  1. Fidelity Bonds are designed to cover an employer from direct loss due to fraudulent and dishonest acts (namely theft) by their employees. They are commonly referred to as “dishonesty insurance”.
  2. Several types of Fidelity Bonds are designed for the needs of employers
    • An Individual Bond is used when an employer wishes to bond a single employee
    • A Name Schedule Bond is used when an employer wishes to bond several employees who are all named in the bond
    • A Position Schedule Bond is available to employers that desire to bond a specific position, regardless of who fills said position, or how often the person filling the position is replaced.
    • A Blanket Bond is for an employer that desires to cover all existing employees of a firm without exception, as well as any new employees.

Our job as an independent insurance provider is to help you navigate a cumbersome system in finding the best fit for your bond requirements. We can help you find your bond needs, provide you with your bond, and help you get it to the party requesting it.

Call our office today or complete the form below to get started!

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