Insurance bonds, also commonly referred to as surety bonds, can play an important role in protecting both businesses and consumers from financial loss. Unfortunately, far too many people fail to understand the way these bonds work, and therefore fail to take advantage of the benefits they are able to offer. Taking the time to review the answers to the most frequently asked questions regarding insurance bonds, you can ultimately ensure that you do not find yourself in this same unfortunate situation.
What Are Insurance Bonds?
Insurance bonds are essentially a contractual agreement between three separate parties, the surety, the principal, and the obligee. Under these contracts, the surety is typically an insurance company like Olympic Northwest Insurance who is guaranteeing paying if the principal fails to follow through with their responsibilities under the terms of the contract. The principal is the individual who is promising to provide a specific product or service for a specific price. Finally, the obligee is the person who is scheduled to receive the products or services being offered by the principal, as well as the beneficiary of the bond if the principal fails to uphold their end of the deal.
Who Is Eligible To Obtain An Insurance Bond?
Just about anyone can obtain an insurance bond. However, the most common use for insurance bonds is in the construction and service industries.
In the construction industry, contractors will often be required to obtain what is known as performance bond or a bid bond. A performance bond guarantees that the contractor will complete the job as described, while a bid bond guarantees that the contractor will complete the job for no more than the value of their original bid.
How Can An Insurance Bond Help To Protect You From Financial Loss?
Insurance bonds protect you from suffering a financial loss by ensuring that you get exactly what you intended to pay for when making a large personal or professional investment. In many ways, the use of these bonds will completely eliminate the risk that comes along with making these investments since the surety company will be responsible for reimbursing your costs if the bonded contract is not fulfilled.
While the use of insurance bonds can seem a bit confusing at first, the fact is that these bonds can prove extremely beneficial, especially when dealing with large scale projects that require a sizable investment. To learn more about how these bonds work, and how they can benefit you, be sure to schedule a consultation with a qualified insurance broker in your local area before signing your next high value contract.Share
7 November 2014