Bond insurance is a type of insurance policy that a bond issuer purchases that guarantees the repayment of the principal and all associated interest payments to the bondholders in the event of default. Different types of bonds include;
A Performance bond is a type of surety bond that guarantees contracts are fulfilled. These bonds are most commonly used in the construction industry to ensure projects are completed according to the contract.
A Development bond is normally in favour of Local Authorities/Councils/Water companies to ensure that the Contractor has fulfilled his obligations in relation to the construction and maintenance of roads or sewers.
If the client agrees to make an advance payment to a supplier, a bond may be required to secure the payment against default by the contractor. This is referred to as an Advance Payment Bond (APB). APBs are widely used in a number of industries including the Construction Industry. In the case of a construction project, the contractor (in this instance, the Principal) may request an advanced payment prior to the project commencing in order to purchase high value plant or materials that are specifically required for the project. The client may make an advance payment on the premise of an Advance Payment Bond being supplied to secure said client in the event that the contractor fails to fulfil its contractual obligations, for example if the contractor becomes insolvent.
A Customs bond is a contract to ensure that all the duties and fees associated with the rules and regulations of importing or other Customs activities are paid to Customs by the principal e.g. Tax Warehouse or Deferred Duty.
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