A connection is a legal contract that involves three parties: (1) The bonded party (the client seeking the bond), also called the Principal, (2) the obligee or the party that is requesting the bond from the client or usually the one who is the recipient of an obligation, and (3) the surety (insurance company), also called Obligor who assures the obligee that the principal can perform the task.
It is important to understand that the bond is not an insurance policy. Bond pays for damages due never to meeting conditions, lack of completion, a dishonest behavior, etc. Insurance pays for damages because of an accident.
A surety bond, for instance, is a guarantee that the Principal in the bond, will perform the "obligations" as mentioned in the bond contract. As an example, these obligations may be completing a project on a specific date, performing certain tasks based on village codes, etc. After the Principal has met the conditions, the bond becomes "void" ;.The language of the bond normally holds the Principal and the Surety the responsibility to generally meet the terms of the bonds, jointly and severely - and thus the Obligee could follow either party or both party in the case of not satisfying the terms of the bond.
There are hundreds types bonds. They include:
- Auto Dealer Bonds: A connection required by many states for new ventures in the used car dealership.
- Bid Bonds: Provide guarantees that certain individuals will sign the contracts when they're bidding and the bid is awarded to those people.
- Broker Bonds: A connection covering a wide variety of brokers, like insurance brokers, mortgage brokers, real estate brokers, etc.
- Cigarette Tax Bonds: A connection required by the government from tobacco distributors, to be sure they'll pay the taxes.
- Completion Bonds: A guarantee that a project will soon be completed on or before a specific date, regardless.
- Contractor License Bonds: Local and federal governments may request from certain contractors to have contractor bond, to ensure that the governmental body to grant license for the contractor to use at a particular place.
- Customs Bonds. Required by the federal government (US Customs) from importers.
- DME Bonds: Bonds required by the federal government (Medicare) from the Distributor of Medical Equipments.
- Fidelity Bonds: Guarantee having less harmful or dishonest acts of certain individuals (employees, for example.)
- Freight Broker Bond (aka ICC Bond, or BMC-84) A connection that a federal government body (FMCSA) requires from all transportation/ freight brokers to use - to guarantee delivery.
- Fuel Tax Bonds: A connection to guarantee payment of truckers of fuel taxes sold in a particular area.
- Jail Bonds: Guarantee that the individual will come back to jail/court on/ before a particular date.
- License and Permit Bonds: A type of bonds, not really a type. This category includes contractors bonds, auto dealers, brokers, and other types.
- Liquor Tax Bonds: A connection to guarantee that who owns a liquor establishment can pay liquor taxes to the government.
- Lottery Bonds: A connection that the establishments with state lotto machine are expected to have to guarantee payments of lotto money to the state.
- Mortgage Banker/ Lender Bonds: Different as mortgage broker. This bond guarantees that the lending institution will adhere to their state laws linked to lending.
- Payment Bonds: Guarantee certain payments are created with a specific date.
- Payday Loan Bonds: Bonds that guarantees that payday lenders are operating per their state laws and rules.
- Sales Tax Bonds: A Bond that guarantees the payment of sales tax to the government.
- Title Agency Bonds: Required by many local governments to guarantee the title agents.
- Utility Bonds: Used to guarantees the payment of the utility bills in timely manner.
Cost of bonds
The expense of the band depends on the quantity of the bond, the credit of the Principal, and the type of the bond. As an example a $10,000 contractor bond is less than the usual $50,000 similar bond. Some bonds require strict credit and financial underwriting. invest bonds A $20,000 used car dealer bond could sell for under $200 for someone with good credit, but might cost $1,500 (or even be not available) for someone with bad credit. Insurance companies also compete among one another, so a relationship that costs $100 with an organization might cost $50 with a different company.
