What Are Two Types of Bonds in Insurance?

What Are Two Types of Bonds in Insurance?

Essentially, surety bonds are legally binding promises. They guarantee that a task will be completed in line with legalities and industrial standards.

Individuals purchase a bond (principal) and then a company backs the bond (surety). If a claim is made against the bond, the surety will compensate consumers or reimburse a business for any losses sustained.

Commercial Surety Bonds

Commercial surety bonds are purchased by businesses and working professionals to comply with state licensing and permit regulations or to guarantee a contractual obligation. They are often more straightforward to obtain than contract/ bonding sureties, and insurance companies are usually the issuers of these types of surety bonds.

An individual can file a claim with the bonding company for damages caused by a bonded principal’s failure to adhere to government-enforced regulations or meet a contractual obligation. If investigators find that the claim is valid, the surety company will compensate the consumer up to the limit of the bond. The bonded principal must then reimburse the surety company for the amount paid out on a claim.

There are many different types of commercial bonds, including auto dealer bonds, collection agency bonds, employee dishonesty bonds and appeal bonds. Businesses can also purchase fidelity bonds to protect against theft and property damage by current, former or temporary employees.

Most of the time, a business must purchase a bond before it can open its doors for business in order to demonstrate that it is financially responsible. However, bonds are not a substitute for comprehensive general liability insurance or professional indemnity insurance. It is important for businesses to evaluate their risk and determine the types of coverage they need before purchasing a surety bond.

Fidelity Surety Bonds

There are a variety of bonds used to protect third parties in various industries. These include ERISA Bonds, Fidelity Bonds and Business Service Bonds. While surety bonds involve 3 parties, fidelity bonds only involve 2 parties (in addition to the surety company). These types of bonds are very similar to insurance and provide coverage for legal disputes that occur between customers or clients and the employees of a business.

For instance, a financial institution may need a fidelity bond to protect its clients from theft, forgery and fraudulent trading by employees. In the same way, a commercial crime bond provides protections to businesses against burglary, dishonesty and computer fraud committed by its employees.

Just like contract and commercial bonds, a fidelity bond typically has a cost between 1 – 15% of the principal’s annual premium. The cost is based on the principal’s personal credit score and the business information that is included in their D&B Business Report. If a claim is made against the fidelity bond, the surety company will pay out on the claim and then collect the money back from the principal. This is why a strong D&B score is so important for business owners that need to get bonded. The more solid your D&B is, the lower your bond cost will be. This also allows you to qualify for larger bonds if needed.

Court Bonds

Court Bonds are a broad category of surety bonds that ensure compliance with legal requirements of courts. They are a three-party contract between the principal (your customer), the surety company and the obligee (the entity requiring the bond). Court bonds can be categorized as either probate or judicial. Probate bonds guarantee the faithful performance of an appointee’s obligations and duties to a deceased person’s estate. The probate bond subcategory also includes guardianship and trustee bonds. Lastly, there are appeal bonds and supersedeas bonds. These types of bonds are posted by people who intend to make an appeal of a court decision.

All court bonds are regulated by state and federal laws, and most require that they provide a level of financial protection for the obligee from any loss associated with a lawsuit involving them. The type of bond, required bond amount and the length of the contract all impact the premium rate. In addition, the personal credit score of the applicant will also be a significant factor.

For the best rates on Court Bonds, contact a National Surety Bond Agency as soon as you receive the Order and Judgment from the court. The agent can help you decide what type of bond is needed and get it issued quickly. Often, the agency can even issue the bond the same day the Order and Judgment is received.

Judicial Bonds

Judicial bonds guarantee that parties to legal proceedings will fulfill their duties to the court. They can be written for plaintiffs or defendants in a lawsuit or they may be required for an individual who has been granted authority over another person’s assets as part of a trust or will. Like fiduciary and probate bonds, they are backed by the good character, financial strength and moral standing of their applicants.

The type of bond that a person needs will be determined by the court and the terms of any related contracts. For example, a construction contractor must post a performance and payment bond to ensure that they will complete the work in accordance with the specifications put in place by the project owner and that they will compensate subcontractors and suppliers who provide their services or equipment on the job site.

Other types of judicial bonds include restraining orders, attachment bonds and supersedeas bonds. The former enables a plaintiff to take possession of money or merchandise from a defendant while awaiting the outcome of a lawsuit. The latter prevents an officer of the law from executing on a judgment while it is being appealed by a higher court.

If a person is required to obtain a judicial bond for any reason, they can typically apply online, by phone or in person through a national surety agency that can evaluate an applicant’s creditworthiness and moral standing. If approved, a judicial bond can usually be issued within 24 hours of a completed application.


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