| A bond is a contract under which one party binds
himself financially for the performance by another of an agreed-upon
obligation.
Surety bonds are the assumption of responsibility by an insurer
for the fulfillment of another party’s obligations. Fidelity
bonds guarantee the honesty of the principal. Common bonds are:
Bid – This type of bond is a guaranty to
the person asking for the bids that, if the contractor’s bid
is accepted, he will sign the construction contract and furnish
a performance and payment bond.
Performance and Payment Bonds – Should the
bid be accepted, or a contract signed to perform the work, the insurer
agrees that the contractor will live up the contract, or they will
pay the additional expense involved in getting a second contractor
to complete the job. The insurer will also pay losses represented
by the delays in finishing the project.
License and Permit Bonds – These bonds are
required by federal law, by state law, by municipal ordinance, or
by regulation as a condition to be fulfilled before the granting
of a license to engage in a particular business or the granting
of a permit to exercise a particular privilege. A wide variety of
license and permit bonds are written to insure that laws and regulations
pertaining to a certain business will be followed – detectives,
electricians, funeral directors, public accountants, demolition
consultants, etc.
Notary Bonds – A notary is considered to
be a public official and must observe the laws of the state within
their jurisdiction. A notary public bond protects the people in
the even that the notary makes an error.
Real Estate Bonds – This is the amount of
money paid by the tenant as a form of security against any future
breaches of the security agreement.
ERISA Bonds – In 1974, the Employee Retirement
Income Security ACT (ERISA) was enacted to regulate most types of
employee benefit plans. This Act requires a fidelity bond covering
the fiduciary (those responsible for managing the plan) and the
person who handles funds or other property of such a plan. The coverage
is intended to protect the plans from dishonesty and fraud committed
by individuals who are associated with them.
Employee Dishonesty Bonds – These bonds
guarantee that the bonded employee(s) will handle their employer’s
money and property with fidelity.
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