Bonds

All businesses must account for various risks and exposures to safeguard their finances against losses. However, in many cases, you may also need to secure loss control measures on behalf of other parties, such as your clients and customers. These parties depend on your company to deliver reliable and consistent products and services; even slight miscalculations or errors could have significant consequences. With this in mind, your organization may need to purchase bonds. 

What Are Bonds? 
Bonds are a type of loss control instrument that may help parties with whom you work to secure their financial interests. If your organization is unable to deliver promised services or complete them in accordance with contractual obligations, appropriate bonds may insulate you and your clients from financial consequences while also potentially sparing your reputation.  

What Is the Difference Between Bonds and Insurance Policies? 
Insurance policies and bonds can provide essential financial security for businesses, but they are not the same. While insurance policies are typically ongoing arrangements paid for in regular installments, bonds are typically purchased to provide financial reassurance between your business and a third party for a specific job or project.  

What Is a Surety Bond? 
Surety bonds are among the most commonly utilized types of bonds in the United States. These arrangements typically entail a financial agreement between the following three parties: 

• The principal—This party, such as a business or contractor, purchases surety bonds if required to do so by the obligee.
• The obligee—This party, such as a developer or property owner, determines if the principal is required to purchase bonds.
• The surety—This party, such as an insurance agent or broker, underwrites and maintains surety bonds.