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If you want to enhance your business’s credibility with clients and give it a competitive edge, you may want to invest in bonds. Additionally, in some cases, bonds are compulsory. At Newberry Ins Group, we offer a range of bond options tailored to suit your business needs. Contact us today to initiate the process.
What Is Bond Insurance for a Business?
Two primary types of bonds are available to businesses:
- Surety bond—This is a contractual agreement that protects a business from financial loss if it fails to fulfill its obligations to clients or customers. For example, if a business doesn’t complete a project as promised, the client can file a claim with the bond insurance company and receive compensation for the financial loss.
- Fidelity bond—This insurance policy protects businesses against financial losses resulting from fraudulent or dishonest acts committed by their employees.
What Is Bonding Insurance for Contractors?
The success of construction projects depends heavily on the project owners’ ability to assess and handle risks, as well as make financially prudent decisions to ensure that the project is completed on time. Private owners cannot take chances with contractors whose reliability is uncertain or who may become bankrupt during the project. Thus, a surety bond serves as a safeguard for their investment.
Contract surety bonds offer financial security and assurance for building and construction projects by providing a guarantee to the project owner (obligee) that the contractor (principal) will carry out the work and compensate subcontractors, laborers and material suppliers according to the contract. They include various types, such as bid bonds, performance bonds, payment bonds, maintenance bonds and subdivision bonds.
Commercial surety bonds provide a guarantee that the principal will fulfill the obligation or task outlined in the bond. Commercial surety bonds include various types, such as license and permit bonds, judicial and probate bonds, public official bonds, federal (noncontract) bonds and miscellaneous bonds.
How Do Insurance Bonds Work?
Insurance bonds, also known as surety bonds, work by providing a guarantee that the person or business purchasing the bond will fulfill their obligations. If the person or business fails to meet their obligations, the bond becomes payable and the insurance company will compensate the client for the financial loss.
There are notable differences between suretyship and other types of insurance, including:
- In traditional insurance, the insurance company assumes the risk. In contrast, with suretyship, the principal bears the risk, and the bond’s protection is designated for the obligee.
- Traditional insurance companies anticipate paying a portion of the premium for the policy in losses. However, with true suretyship, the premiums paid are considered “service fees” for using the surety company’s financial backing and guarantee.
Traditional insurance products aim to “spread the risk” in their underwriting, while surety professionals view their underwriting as a type of credit. Thus, the emphasis is on the prequalification and selection process.
Get a Bond Today
Bonds and bond insurance can be crucial protection for both businesses and contractors. By purchasing bond insurance, they can ensure that they will fulfill their obligations to their clients and avoid financial loss in case of failure to do so. Several types of bond insurance are available, so choosing the right one for your needs is essential. Contact Newberry Ins Group today to get started.