Bonds Types of Bonds Quote / Form Bonds Quote Form

Bonds

Insurance Bonds are in the nature of Guarantees or Sureties and are not Insurance policies, but a form of finance, replacing the need to lodge cash or security as surety for performance of obligations under a Contract, or compliance with the Condition of a Licence

Insurance bonds replace the need to use cash or bank guarantees as surety in various contractual agreements such as commercial real estate purchases, commercial leases and where undertakings are given re performance and maintenance etc. Insurance bonds (deposit bonds) are also available for residential real estate purchases.

The brilliance of insurance bonds is that working capital is freed up to work in the business, plus insurance bonds are treated as ‘off balance sheet’, thus improving company financials.

Basically, if your firm is providing some form of financial surety or guarantee, it’s highly likely it can be replaced with an insurance bond.

Although Bonds are written by insurance companies Bonding is not insurance. It is a form of finance, particularly so in Australia where security for Building and Engineering Contracts is specified as a percentage of the award contract price to be lodged as either Cash, Government Inscribed Securities, Bank Guarantee, Letter Of Credit or Insurance Company Bond.

An insurance contract is between two parties (insurer and insured). A Surety Bond is between three parties (Surety, Obligee and Principal). An insurance contract is an annually renewable contract and may be endorsed mid-term to include additional items of interest or cancelled at any time at the insured option. A Bond is issued for the term of the contract and may only be determined by either the successful completion of the obligation or payment under the Bond by the Surety.

Please contact your accountant for further advise regarding whether this option is right for you