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What is Bond Insurance?
To guarantee the performance of a contract in any project, a surety bond will get you covered. A surety bond is a contract between three parties which works as follows -the principal (you) , the surety (KYC Insurance®), and the obligee -in which the surety financially guarantees to an obligee that the principal will act in accordance with the terms established by the bond.
Bond Insurance will cover:
Bid Bond: Provides financial protection to the owner if a bidder is awarded a contract but fails to sign the contract or provide the required performance and payment bonds.
Performance Bond: Provides an owner with a guarantee that, in the event of a contractor’s default, the surety will complete or cause to be completed the contract.
Payment Bond: Ensures that certain subcontractors and suppliers will be paid for labor and materials incorporated into a construction contract.
Warranty Bond (also called a Maintenance Bond): Guarantees the owner that any workmanship and material defects found in the original construction will be repaired during the warranty period.
Surety bonds are an important risk mitigation tool, but it’s essential to know that insurance and surety bonds are two different types of tools. The terms “surety bond,” “surety bond insurance,” and “surety insurance” are often used interchangeably, causing some confusion for consumers. It’s important to note that surety bonds are not insurance.
The clock starts to ticking!
Also known as “performance bonds”, a contract bond serves as a guarantee for the fulfillment of your contractual terms. A performance or contract bond is a particular type of surety bond. Its purpose is to assure a standard of performance agreed upon by the contractor and the customer.
As it is based on the performance, the parties in this contract can specify expected time of completion, materials to be used on the project, and a multitude of other factors to meet the customer’s requirements. It is issued either by a bank or an insurance company, and is generally purchased per project, by contractors, as part of the requirements for securing a job. Among other things, it protects the customer from incomplete projects. This can include instances in which the contractor goes bankrupt before the project is complete.
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