Commercial bonds are needed to protect insurance policyholders from financial losses that result from a third party’s shortfalls rather than inadequacies of the internal business model. Classified as “Financial Loss Insurance,” fidelity and surety bonds offer coverage against various financial risks, from a contractor’s default on a project to an employee stealing money.
A fidelity bond protects businesses from losses incurred due to fraudulent acts of individuals, such as employees or investors. These insurance policies provide coverage for employee dishonesty or misconduct that results in financial, asset or other business losses.
Surety bonds offer 100% protection against financial liability, as they protect you, the “obligee,” in the event that the insured, or “principal,” cannot perform its contractual obligation. In this case, the “surety” resumes financial responsibility for losses or enforces coverage from the principal.
While this type of situation can never be anticipated, it is important that policyholders are protected when it does occur, by proactively mitigating financial risk through the use of commercial bonds.