Bonds aren't traditional types of insurance, a bond is a guarantee - either guarantee of repayment, reimbursement for financial losses, or a guarantee of performance.

There are three parties to a bond:

Principal: a person who promises to fulfill the obligation and who purchases the bond.

Obligee or Insured: the person whom the promise has been made to; this is the person who receives the bond should the promise be broken.

Guarantor or Surety: the entity that provides the financial backing for the guarantee, known as a bond penalty.

Bonds fall into two different groups:

Surety Bonds - these bonds do not pay for losses, surety bonds guarantee specific duties and obligations will be fulfilled.

Fidelity Bonds - these bonds are used to guarantee honesty and trust, not performance.

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