Business Bonding Insurance Key Terms

Business bonding insurance terms you need to know

Business bonding insurance helps owners protect their assets from employee wrongdoing, as well as any catastrophic events that might arise from construction projects that the company may embark on. There are numerous types of bonds available on the market today and when the bonding insurance industry is struggling, the government can intervene to protect the business owners. Getting bonded can help your business provide reassurance to consumers, particularly if you are in the construction business, which is a big market for bonding insurance companies. Small business owners in particular benefit from bonding because it helps them stand out from their competition.

Surety bond

A surety bond is an agreement between a principal (the party who will be fulfilling a contractual obligation), an obligee (the party who is receiving the service) and the surety (who ensures the principal's obligation is performed). There are various types of surety bonds that business bonding companies offer, including bid, payment and performance to name a few.
U.S. Small Business Administration explains this term and has various resources you can refer to.

Bid bond

A bid bond is a type of surety bond issued as part of a bidding process by the surety (a bonding insurance company) who guarantees that the winning bidder will complete the contract under the terms that were articulated in the bid.
Go to Investopedia for more information on this type of bond.

Payment bond

A payment bond is a type of surety bond that stipulates payment to certain parties in the event of a breach of contract by a contractor on a construction project. Payment bonds are a type of bond offered by business bonding insurance companies.
Donahue Consulting explains payment and performance bonds in "plain English."

Performance bond

A performance bond is another type of surety bond that is issued by a bonding insurance company that guarantees a contractor will complete a project satisfactorily. These are commonly used in the development and construction of real property. It is usually a guarantee that the work will be completed in case of an unforeseen event.
You can find more information on this type of bond at InvestorWords.com.

Indemnity

An indemnity bond is an insurance policy that provides financial protection for an organization against possible damage, loss or liability for any claims arising from the project. Business bonding insurance companies can provide indemnity bonds.
TeachMeFinance.com has a description of this term.

License bond

A license bond is also sometimes referred to as a permit bond. It is an instrument that guarantees a contractor will comply with all the state, county and city laws that govern the issuance of the license. Business bonding insurance companies can provide this type of bond to companies that request them.
For more information on this type of bond go to JW Bond Consultants.