BONDS
Insurance Bonds are primarily known as Surety Bonds and are issued and regulated by the Insurance Industry. All Surety Companies are licensed and controlled by the state insurance departments where they operate. Generally there are two main categories of bond types: contract bonds and commercial bonds.

Contract Insurance Bonds
Known as a performance and payment bond is a three party instrument. The parties of this form of insurance bonds are:
Bond Insurance
  • The principal - the primary party who will be performing a contractual obligation
  • The obligee - the party who is the recipient of the obligation, and
  • The surety - who ensures that the principal's obligations will be performed.
Through this agreement, the surety agrees to uphold - for the benefit of the obligee - the contractual promises (obligations) made by the principal if the principal fails to uphold its promises to the obligee. The contract is formed so as to induce the obligee to contract with the principal, i.e., to demonstrate the credibility of the principal.

Contract bonds guarantee a specific contract. Examples include performance, bid, supply, maintenance and subdivision bonds. Commercial bonds guarantee per the terms of the bond form. Examples include license & permit and union bonds.

Commercial Insurance Bonds
Commercial Bonds are a general classification of bonds that refers to all bonds other than contract and performance bonds. Commercial bonds cover obligations typically required by law or regulation. Each bond is unique to the circumstances at hand.

License and Permit Insurance Bonds
A term used to refer to bonds, which are required to obtain a license or permit in any city, county, or state. These bonds guarantee whatever the underlying statute, state law, municipal ordinance, or regulation requires. They may be required for a number of reasons; for example the payment of certain taxes, fees, and providing consumer protection as a condition to granting licenses related to selling real estate or motor vehicles and contracting services.