A connection is just a legal contract that involves three parties: (1) The bonded party (the client seeking the bond), also known as the Principal, (2) the obligee or the party that is requesting the bond from the client or usually the one who is the recipient of an obligation, and (3) the surety (insurance company), also known as Obligor who assures the obligee that the principal can do the task.
It is important to understand that the bond is not an insurance policy. Bond pays for damages due to not meeting conditions, insufficient completion, a dishonest behavior, etc. Insurance pays for damages because of an accident.
A surety bond, for example, is just a guarantee that the Principal in the bond, will perform the "obligations" as previously mentioned in the bond contract. For example, these obligations can be completing a project on a specific date, performing certain tasks based on village codes, etc. Once the Principal has met the conditions, the bond becomes "void" ;.The language of the bond normally holds both the Principal and the Surety the responsibility to generally meet the terms of the bonds, jointly and severely - and thus the Obligee could go after either party or both party in the case of not satisfying the terms of the bond.
You can find hundreds types bonds. They include:
- Auto Dealer Bonds: A connection required by many states for new ventures in the used car dealership.
- Bid Bonds: Provide guarantees that certain individuals will sign the contracts when they're bidding and the bid is awarded to those people.
- Broker Bonds: A connection covering a wide variety of brokers, like insurance brokers, mortgage brokers, real-estate brokers, etc.
- Cigarette Tax Bonds: A connection required by the federal government from tobacco distributors, to be sure they'll pay the taxes.
- Completion Bonds: A guarantee a project will undoubtedly be completed on or before a specific date, regardless.
- Contractor License Bonds: Local and federal governments may request from certain contractors to have contractor bond, for the governmental body to grant license for the contractor to operate at a particular place.
- Customs Bonds. Required by the us government (US Customs) from importers.
- DME Bonds: Bonds required by the us government (Medicare) from the Distributor of Medical Equipments.
- premium bonds to invest in the UK
- Fidelity Bonds: Guarantee the possible lack of harmful or dishonest acts of certain individuals (employees, for example.)
- Freight Broker Bond (aka ICC Bond, or BMC-84) A connection a federal government body (FMCSA) requires from all transportation/ freight brokers to operate - to guarantee delivery.
- Fuel Tax Bonds: A connection to guarantee payment of truckers of fuel taxes sold in a particular area.
- Jail Bonds: Guarantee an individual will return to jail/court on/ before a particular date.
- License and Permit Bonds: A group of bonds, not just a type. This category includes contractors bonds, auto dealers, brokers, and other types.
- Liquor Tax Bonds: A connection to guarantee that the owner of a liquor establishment will pay liquor taxes to the government.
- Lottery Bonds: A connection that the establishments with state lotto machine are expected to have to guarantee payments of lotto money to the state.
- Mortgage Banker/ Lender Bonds: Not similar as mortgage broker. This bond guarantees that the lending institution will adhere to the state laws linked to lending.
- Payment Bonds: Guarantee certain payments are manufactured with a specific date.
- Payday Loan Bonds: Bonds that guarantees that payday lenders are operating per the state laws and rules.
- Sales Tax Bonds: A Bond that guarantees the payment of sales tax to the government.
- Title Agency Bonds: Required by many local governments to guarantee the title agents.
- Utility Bonds: Used to guarantees the payment of the utility bills in timely manner.
Cost of bonds
The price of the band is dependent upon the quantity of the bond, the credit of the Principal, and the type of the bond. For example a $10,000 contractor bond is less than a $50,000 similar bond. Some bonds require strict credit and financial underwriting. A $20,000 used car dealer bond could sell for under $200 for anyone with good credit, but may cost $1,500 (or even be not available) for anyone with bad credit. Insurance companies also compete among one another, so an attachment that costs $100 with a company may cost $50 with an alternative company.
