Bonds

A traditional insurance policy is an agreement between two parties. A surety bond agreement is between three (you, the business owner, are the principal, and the obligee is your client).

As this is not a typical insurance product it is very important to work with a broker who understands the intricacies of how the three parties work together. The needs of completing paper work can be a daunting task and BKIFG can help get this together to present a good case to the Surety. We would then secure the best terms possible going forward.

Here’s how it works:

The project owner issues a contract to the contractor, who pays a premium to the surety, who then guarantees a bond to the project owner to be used under certain circumstances. In this way, all three parties are connected via the surety bond, which can take different forms according to the nature of the project.

A surety bond is a guarantee of performance of an obligation. The bond itself gives rise to a three party relationship where the Surety agrees to fulfil the obligations of the Principal (the ‘insured’ or bonded party) to the Obligee (the beneficiary of the bond), in the event the Principal is unable to do so. The Surety stands behind the Principal as a guarantor or ‘co-signer’. The Surety typically does not become involved unless the Principal is in legitimate default of their obligations to the Obligee, at which point a claim is made under the bond and the Surety steps in to remedy the failure to perform.

*These coverage descriptions are for illustration purposes only. For full  particulars, recourse must be made the actual policy wordings.

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