As a business, you must account for many risks and exposures, including those that may impact other parties, such as customers and clients. After all, if others trust your organization to provide services, goods and products of adequate quality and in a timely manner, failing to do so could have significant financial repercussions. Given these stakes, your company should prioritize understanding and acquiring appropriate bonds.
What Is a Bond?
Also known as insurance bonds, bonds are contractual instruments that can offer financial security and peace of mind to those involved in formal business agreements. For example, when contractors are hired to work on a job, they may be required to retain bonds to ensure that developers and project owners have a way to recoup potential losses should contractual obligations go unfulfilled.
What Types of Bonds Do I Need?
Bonds come in many forms and your organization’s exact needs may vary depending on its unique circumstances, as well as clients’ preferences or requirements. In the United States, many business arrangements utilize the following primary types:
- Surety bonds, such as commercial bonds and construction bonds, establish an agreement between the following three parties:
- The principal, such as a business or contractor, is responsible for purchasing bonds if deemed necessary by the obligee.
- The obligee, such as a client or developer, determines if surety bonds are needed to secure their financial interests.
- The surety, such as an insurance company, underwrites and maintains bonds purchased by the principal.
In the event that the principal fails to deliver promised goods or services to the obligee, the latter may recoup resulting financial losses via the surety bonds. The surety may then seek reimbursement from the principal.
- Fidelity bonds, also known as honesty bonds, may be an advisable or required investment to financially protect clients and customers if your employees (including contractors) commit dishonest, criminal or fraudulent acts, such as the following:
- Fraudulent transactions
- Property damage
These arrangements may be suitable for companies that handle sensitive information (e.g., social security numbers and personal data) or work off-site at clients’ homes or businesses.
At First Community Insurance & Annuity Center, we have over 30 years of experience serving businesses, families and individuals. Our knowledgeable staff is committed to helping you understand surety bond coverage, fidelity bonds and other bond-related needs, and secure appropriate financial security for both you and others with whom you enter into business agreements. Contact us today to learn more.