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An insurance bond is a contract between three parties—the principal (issuer or owner of the bond), the surety (insurance company issuing the bond) and the obligee (the entity requiring the bond)—in which the surety financially guarantees to an obligee that the principal will act in accordance with the terms established by the bond. For this guarantee, the principal pays the insurer premium as compensation for insurance.
A bond is an obligation of the surety company (the company issuing the bond) to protect one person against financial loss caused by the acts of another. Dishonesty Bonds protect a housekeeper, maid, or janitor against claims that the housekeeper stole or broke a client’s property.
By being a guarantee for the repayment of the principal and all associated interest payments to the bondholders in the event of default.
This bond is taken to ensure that obligations set out in a construction contract bond are met with the contractor as the principal and the obligee as the project owner or investor. It is required for commercial and government real estate constructions and purchased by general contractors, large construction companies, individual contractors and government sub-contractors
Bond insurance protects borrowers from default by the issuer by guaranteeing repayment of principal and sometimes interest. Issuers of bonds that purchase this type of insurance can receive a higher credit rating on those bonds as a result, making them more attractive to some investors.
Bonded contractors are also a lot more trustworthy. That’s not just because you have some guarantee in case something goes wrong – it’s because an insurance company trusts the contractor. … You always knew why you wanted a company to be bonded, licensed, and insured – it means security.