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What exactly is a Bond?
Bonds and insurance serve two different purposes, and respond very differently.
A bond in layman’s terms is a way to secure a debt or obligation.
Bonds, and more specifically, Surety Bonds are essentially a type of credit that is extended by the bonding company, or “Surety”, to the bond holder who is referred to as “The Principal” in the bonding contract.
Lets look at an example.
- Your a contractor, who holds a $6,000 bond in order to maintain your Washington State contractors license. The purpose of your bond is ultimately to protect the public and your customers against the failure to uphold your end of a contract. If you fail to complete a job as dictated by your contract with a client, a client can make a claim against your bond for up to $6,000.
- Because bonds are a type of credit, if a bond claim is paid on your behalf, you are obligated to repay the surety company for the amount paid out against the bond.
- This is why your personal and/or business credit is used when pricing your bond.
- In an insurance policy, there is typically no requirement to repay the insurance company when a claim is paid; this is a key difference between a surety bond, and an insurance policy.
In the insurance world a lot of times you will see bonds requested in the following ways:
Surety Bond
A surety bond is a contract between three parties. The person who is the recipient of an obligation, the primary party who will perform the contractual obligation and the person who assures the obligation will be done.
Lost title Bond
These bonds are a type of surety bond. They provide a proof and guarantee of ownership to the Department of Motor Vehicles. When no other form of documentation is available a Lost Title Bond shows the DMV that you are the “owner” of said vehicle.
Contract Surety Bond
Contractor bonds are one of the most “popular” bonds you will see asked for in the insurance space. Contract bonds are used in the construction industry by general contractors. They are a guarantee to a project’s owner that the general contractor will adhere to the contract put in place.
License and Permit Bonds
These types of bonds function as a guarantee to a government entity that a company will comply with a statute, state law, ordinance, etc.
Some examples are but not limited to:
- Contractors License Bonds
- Tax Bond
- Environmental Bonds
- Broker’s Bonds
- Motor Vehicle Dealer Bonds
- ERISA Bonds
Our job as an independent agent is to help you navigate an often cumbersome system, in order to find the best fit for your bond requirements.
We can help you find an affordable bond, and help you get it to the party requesting it.
Call our office today or complete the form below to get started.
