CORNER OF FRONT & BUCHANAN STREETS
P.O. Box 10-1526-1000 Monrovia, Liberia 1000
CALL US: +231 777 964 265
email: info@nicolinsuranceservices.com
+231 777 964 265
NICOL Insurance Services > Blog > Types of Bond Insurance You Need to Know
types of bond insurance
  • Comments: 0
  • Posted by: noye

Types of Bond Insurance You Need to Know

Bond insurance is the type of insurance where a person increases their credit rating by adhering to some rules and regulations. If someone’s credit rating is low, lenders find loaning money to them a risky business. So people with lower credit ratings take bond insurance. 

If the person who bought the bond fails to follow the timeline and does anything outside the law, then they have to pay a certain amount of money as a penalty. 

There are mainly two types of bond insurance out there, the surety bond and the personal bond. The surety bond is issued to a principal, ensuring they will pay the amount in time, and if they don’t, the surety company will indemnify the obligee. On the other hand, a personal bond is issued to a person, making sure they don’t break the rules of a particular bond. 

Let’s take a deeper look at various bond types and how they work.

How many types of insurance bonds are there?

Mainly insurance bonds are of two types. They are

1. Surety Bonds:  Surety bond insurance is the kind of insurance were the principal issues the bond under a condition from the surety that they will pay the obligee the agreed amount of money. In the case of a default, the surety will then pay the money to the obligee while they will be reimbursed by the principal at a later date.

surety bond insurance

2. Personal Bonds: Personal Bonds are bonds that replace a surety bond where the principal agrees to a fixed set of rules by the obligee. If they don’t do so, they will have to pay a previously agreed-upon amount of money.

Now, surety bonds cover a whole variety of situations. As a result, they are of various types:

  • Commercial Bonds: If someone needs any license or permit from the government for any work such as construction works, the government needs them to issue a commercial bond. These bonds are issued to ensure the safety of the public. 
  • Contract Bonds: This is one of the many types of surety bonds in the construction industry. This bond contractually binds a constructor to perform certain duties while doing their work. 

There are many types of contract bonds, such as

  • Performance Bonds
  • Bid Bonds
  • Maintenance Bonds
  • Payment Bonds 

3. Fidelity Bonds: This bond is needed by various companies to ensure their employees won’t be involved in activities that hurt the company. If a company has employees who handle valuable goods regularly, they need these employees to issue a fidelity bond to make sure they won’t steal the goods. 

fidelity bond insurance

The types of fidelity bond insurance are: 

  • Employee Dishonesty Bond
  • Business Services Bond
  • ERISA Bond

Which industries need surety bonds the most?

The industries that have the most to lose from damages and fraud require surety bonds the most. The following industries are those that need surety bonds the most.

  • Motor Vehicle Dealers
  • Construction
  • Transportation
  • Financial institutes.

What are the differences between a bond and insurance?

Although they look similar, bonds and insurances have some clear differences between them.

For example, you can protect your insured items against any claims made by third parties while bonds act as protection in the case of failure. Also, bonds are necessary while insurances are more often than not optional.

Final Words

Bond insurances are a much-needed safeguard against potential failures by issuers. Although there are two main types of bond insurance, these types, especially surety bonds can be divided into many different subdivisions.

These bonds not only protect government interests but also protect various companies from their employees.

FAQs

1. Is a bond a type of insurance?

Yes, the bond is a type of insurance. But that doesn’t mean bonds and insurance are the same.

While bond deals with the issue of protection against failure, insurances deal with third-party claims. Some bonds act like insurance, but not all of them.

2. Does bonded mean insured?

No, bonded doesn’t mean insured. They are quite the opposite in terms of who benefits from them. If someone is ensured, they are the ones who will be the beneficiary if something goes wrong.

On the other hand, if someone is bonded, somebody else will be the beneficiary if any claim is made.

3. What is a bond?

When someone borrows money from someone, usually they agree on some kind of condition. Most of the time these conditions include the amount to be repaid, the interest, and the timeframe of the payment. A bond represents everything in this agreement. Usually, bonds are issued by large entities such as governments, etc.

4. Is surety bond insurance?

Although they seem quite similar, surety bonds aren’t insurance. When a contractor issues a surety bond, they will have to pay a certain amount if any damages are made.

But in the case of insurance, the one who buys it is covered and will be paid for the damages suffered.