Certain organizations must be insured and bonded as determined by the government. Bonds and insurance are separate financial vehicles but have overlapping functions. In many respects, bonds are a form of mandated insurance such as court-ordered bail bonds for criminal suspects. A bond is a guarantee to pay someone like an IOU. Here’s a closer look at bond insurance and how it’s used.
What Does “Bonded” Mean?
Many contractors only conduct business with other businesses that are licensed, insured, and bonded. An entity that requires bond insurance, such as the government, is called an obligee. Requiring a bond of a certain amount is what gets suspects to show up for their court dates instead of paying penalties for failure to appear.
Getting bonded means a company is obliged to pay the government or the public if it does not comply with a contractual agreement. It’s considered insurance because it lets an obligee know sufficient funds are in place if something goes wrong. It also protects business owners from paying a large sum of money from their own pockets.
However, when someone files a claim against a bond, the bondholder must pay back the bond provider. Sometimes that means paying back the full amount rather than just a percentage.
Which Bond Do You Need?
While surety bonds are a type of insurance required by the government, fidelity bonds serve as insurance for businesses. There are various other types of bonds, so you need to find which ones fit your needs.
Every type of surety bond, such as a license bond, is required by a third party. An ERISA bond protects employee benefit plans. You will need to have a conversation with a surety bond expert to determine the exact bond you need.
How to Get a Surety Bond
You must get a surety bond from your surety bond agent. Regular insurers typically don’t deal with surety bonds and may drag the process out while charging higher rates.
Once you apply for bond insurance online with a surety bond agent, you’ll need to wait for a response. The agent will call to discuss your application and may then request you submit additional documentation. Surety agents seek the best bond rates for their clients. After the agent approves the bond, you can pay for it, and then the bond will be mailed to you.
Cost of Getting Bonded
Surety bond agents typically charge a one-time fee. The factors that affect bond costs are credit score, bond type, and amount. The underwriter also plays a role in affecting costs.
Bond insurance can be confusing to individuals and insurance companies. The best way to understand the various types of bonds is they hold substantial cash until a requirement is met. Contact us at Advanced Insurance Group to learn more about different types of bonds and insurance designed to protect businesses.