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Bonds: Your Guarantee of Security to Your Clients
If you are a contractor, you want to promise your clients you’ll look after them if you can’t complete your work. One of the most assured ways to do so is through offering surety bond options. Bonds function as guarantees of compensation if you can’t keep your promises.
How a Bond Differs from Standard Insurance
Still, there are some important ways that bonds differ from insurance. While they will offer a settlement to affected parties, they don’t necessarily guarantee financial protection to the bond carrier.
If a bond company pays a claim on your behalf, you still have a financial obligation. You must repay the bond company for the cost of the claim. So, in that regard the bond is different from your standard insurance. Rather than getting off scot-free, you’ll still face a potential for financial loss because you must repay your client.
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:
Who are the Parties in the Bond?
Bonds involve three parties:
- The principal is you, the party who must carry a bond.
- An obligee is generally your client, or another party who requires a bond.
- The surety is the company issuing the bond.
Each party will interact differently in case of a claim. In some cases, the obligee files the bond claim, while in other cases it is the principal. In other situations, the surety company will pay the obligee directly, while others will pay the principal. The principal will then pay the obligee. Afterwards, the principal and surety will work together to settle the outstanding costs.
The Benefits of Carrying Bonds
If you decide to carry a bond, you’ll create a better financial reputation for yourself and your company:
You’ll be able to promise your clients more compensation in case you can’t follow through with a contract. That will likely make you more trustworthy.
Many potential clients require businesses with whom they work to carry bonds. Therefore, to increase your ability to make contracts, consider bonded options your key.
Get started today!
Contact us today at 915.584.5480, and we can answer any questions you have about bond insurance.