What is an Insurance Bond?
An insurance bond ensures contract completion in the event of contractor default and are typically required by project owners when seeking a contractor’s services.
The contractor obtains a bond so that the insurance company is obligated to compensate the project owner for the financial loss incurred if the work is not completed.
Typical Insurance Bond Types
Although there are many types of insurance bonds, the four most common types are:
· Bid bonds ensure that the bidder on a contract will enter into the contract and furnish the required payment and performance bonds if awarded the contract.
· Payment bonds ensure that suppliers and subcontractors are paid for work performed under the contract.
· Performance bonds ensures that the contract will be completed in accordance with the terms and conditions of the contract.
· Ancillary bonds ensure that requirements integral to the contract, but not directly performance-related, are fulfilled.
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