When it comes to protecting public and private interests, there are two main types of bonds insurance: contractual bonds and commercial bonds. Contractual bonds, such as offer bonds, performance bonds, and payment bonds, are the most common and are used to protect third parties from breaching contractual obligations. Commercial bonds, on the other hand, are used to ensure that companies operating under a license comply with all required codes, regulations, and conduct. Fidelity bonds and court bonds are less common but still important for protecting against theft and litigation.
Compliance bonds are often required for large public construction projects that are financed with taxpayer money or for large contracts that require funding from a banking institution. These bonds are intended to protect the public or the lender from losses when a contractor fails to complete the project in accordance with the contract. They provide a guarantee that the project will be completed according to the contract and, if not, compliance bonds provide the necessary funds to complete the project in case the contractor defaults. Maintenance bonds and subdivision bonds are also types of contractual bonds that allow homeowners to file a claim if their work does not meet industry standards or does not meet their expectations.
Performance bonds are a guarantee that protects the project owner against the contractor's failure to complete a project as agreed. Commercial bonds may last longer than one year, such as sales tax bonds which have a term of 2 years before the principal has to be renewed. Employee dishonesty bonds protect a company against financial losses due to an employee or group of employees. Testamentary bonds, also known as “trust bonds” or “equity bonds”, guarantee that you will perform your functions legally and ethically.
It's very common to get confused about the type and amount of bond you need, especially if this is the first time you've been granted a bond. The most common professions that require a license and permit bond are contractors, electricians, plumbers, and non-resident professionals. Scores above 700 typically have bond premiums between 1% and 3%, while scores below 700 have premiums between 4% and 15%. For example, most guarantees limit the total amount of the bond between 10 and 15 times the value of a company's capital.
A mortgage broker's bond is required for mortgage agents, or loan originators, to receive their license.
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