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 to fulfill a contract.
The contractor obtains a bond so the insurance company is obligated to compensate the project owner for the financial loss incurred if the work is not completed.
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Typical Insurance Bond Types
Although there are many types of insurance bonds, the four most common types needed by business owners are:
Bid Bond - Ensures the bidder on a contract will enter into the contract and furnish the required payment and performance bonds if awarded the contract.
Payment Bond - Ensures suppliers and subcontractors are paid for work performed under the contract.
Performance Bond - Ensures the contract will be completed in accordance with the terms and conditions of the contract.
Ancillary Bond - Ensures requirements integral to the contract, but not directly performance related, are performed.