Bonds are not insurance, rather guarantees and most fall into one of two large categories - FIDELITY bonds or SURETY bonds. Purchasing a bond is an inexpensive way of providing a guarantee.
A FIDELITY bond is similar to insurance in that it is a guarantee against dishonest or fraudulent acts committed by individuals specified by the bond. For example, an employer can purchase an employee dishonesty bond that would pay in the event an employee were to steal from the employer. This could be embezzlement or theft of money or other property, such as items from inventory. Another form of FIDELITY bond is required for those who administer or have access to funds within certain retirement plans governed by ERISA, such as 401(k) and other pension plans. There is also a third-party form of bond, often called a Business Services Bond. This bond is used when employees are required to enter a premises owned by a third-party - usually a customer of the employer. Examples include janitorial firms, a housekeeper, home health care agencies, home improvement contractors, etc. If an employee were to steal any type of property from the customer, the bond would repay the customer. Any time work is done in your home or business, it is prudent to be certain that the firm providing services has their employees bonded.
Another broad category of FIDELITY bonds are court bonds. For example, a probate court may require the executor of an estate to purchase a bond to protect the beneficiaries of the estate.
A SURETY bond is usually a guarantee of performance. Contractors are often required by general contractors or municipal governments to provide bid and performance bonds. The bid bond is simply an assurance that the contractor is able to provide a performance bond if they are awarded the contract. The performance bond assures the one having the work done that the job will be completed in accordance with the terms of the contract - even if the contractor were to go out of business, file bankruptcy, or didn't complete the job properly. A contractor that provides a performance bond will have met strict financial guidelines in order to be approved for bonding.
Within the SURETY category, there is another common form of bonds that fall into the License & Permit Bond Category. These are required by municipalities in order for contractors to perform certain types of work within their jurisdiction and they are a guarantee that a contractor will act in accordance with the laws and ordinances that govern the type of work they are doing.
There are literally dozens of types of bonds that fit into these and even other categories. One way that bonds differ from insurance is that, in the event of a loss to be paid by insurance, the insurance company pays the claimant for the loss. If there is a loss paid by a bonding company, the bonding company will seek reimbursement from the firm or individual who is responsible for causing the loss.
Should your company or its employees be bonded for the protection of your company or its customers? For more information on bonds, call us today at 800-220-5582 or click below.