Many different types
A bond is an instrument that backs the honesty of the purchaser, and there are hundreds of types of bonds. A small village may require a contractor to purchase a license and permit bond for any work done within the city limits. If a contractor accepts a down payment but doesn’t complete the work, the customer, after complaining to the village, can file a claim under that bond. This is an example of a License and Permit bond.
A project owner, worried that a contractor won’t complete a construction project by the time snow falls, for example, may require a Performance Bond. This bond requirement might not only include the completion date, but also a detailed job description or a local labor requirement. Any failure to adhere to this agreement could result in a claim being filed against the issuing insurance company.
A janitorial company, cleaning offices after hours, might consider a Business Services bond. This type of bond would protect their customer if a theft of property occurs under the company’s watch.
Bonds are unique in that, after a claim, the bond company will go after its customer for reimbursement. With this in mind, it’s important that the customer has the financial ability to reimburse the company if a claim is filed and paid. However, bond claims are extremely rare.
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