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Cultivating loss control measures can be critical to securing your company’s financial stability. With this in mind, understanding and acquiring appropriate bonds should be a top priority for many businesses, as failing to do so could mean that even a single mishap or accident could jeopardize your organization’s finances and reputation. 

What Is a Bond? 

Bonds are financial tools often sold by insurance companies. These instruments generally provide parties that enter into business agreements with fiscal security and peace of mind regarding potential shortcomings or issues for which one party is to blame.  

Bonds may often be referred to as bond insurance; however, your company should understand that this is not an accurate term, as bonds and insurance are not synonymous. While bonds typically provide financial protection regarding a specific project or contract, insurance policies are generally ongoing agreements that can cover multiple situations. 

How Do Bonds Work? 

By purchasing and maintaining appropriate bonds, your business and its partners or clients can enjoy peace of mind knowing that financial losses arising from accidents, errors and inadequate services may be recouped. While exact functionality and capabilities may vary, bonds generally provide parties who have entered into business arrangements with a way to resolve these incidents without entering into potentially costly and extended lawsuits. 

What Types of Bonds Are There? 

Bonds may come in many forms with varying purposes and details. Still, in most cases, these products can generally be classified as one of the following: 

  • Surety bonds—This type of bond, which may include performance bonds, license and permit bonds and court bonds, are often used to secure the financial interests of companies that embark on a project together. Surety bonds typically function as an agreement between the principal (e.g., your business), the obligee (e.g., your client) and the surety (e.g., your insurance company). If you are unable to deliver promised services, your client can recoup their losses through the surety bonds you’ve purchased, at which point your insurance company can seek reimbursement from your organization. 
  • Fidelity bonds—These bonds, also known as honesty bonds, are generally used to provide financial protection against dishonest, criminal or fraudulent acts committed by your employees, including contract workers. For example, if you provide cleaning or locksmithing services and one of your employees commits theft, burglary or property damage while visiting a client’s premises, fidelity bonds can provide financial compensation for losses and insulate your business from resulting consequences. 

Learn More 

At Lord & Associates Insurance, we understand that securing your business’s financial interests is a complicated but essential process. Contact us today to learn more about bonds and ensure you have the proper loss control measures in place.    

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