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    Insurance Bonds

    The term “bond” in the insurance world generally refers to a guarantee of future payment or payments, or similar contractual obligations. Bond concepts can be tricky, partly because of the odd terms used to describe these instruments.  

    The three main parties to a bond are: 

    • The principal - the person or entity responsible for making a payment to someone else 
    • The obligee - the party or entity who is being assured of a future payment by the principal
    • The surety - the company, typically an insurance company, that provides the guarantee

    The function of a bond is to quantify the cost of risk of the principal NOT being able to perform what they agree to. A good example is the bid or performance bond, commonly used in the contracting business, where the general contractor wants to be sure the subcontractors are financially capable of completing a project.  These specific bonds are described in greater detail in our blog on Performance Bonds.

    Another type of bond guarantees the performance of a fiduciary, such as the financial team in a company, from violating their duties. These bonds are known broadly as Fidelity Bonds and are described further in our blog on Bookkeeper Dishonesty.

    Businesses working with municipalities, or licensees, to a state or other government entity may be required to post a license bond for all kinds of specific needs. This is partly based on the municipality outsourcing the checking of a company's legitimacy, since a bond conveys a sense of legitimacy.  Bonds are required for real estate agents, several other types of small business, and to obtain permits for government or other public work.

    If you need a bond, call the Gordon Atlantic Insurance professionals toll free at 1-800-649-3252. Prefer to type versus talk? Click below!


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