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Home > Video-Library > Bonded Insurance (Requirements)

Bonded Insurance (Requirements)

Video Transcript

Hello. I’m Jerry Becerra, with Barbary Insurance, and today I want to talk to you about bond insurance requirements. And, bonds are a little different from insurance; bonds are actually three-party contracts where you are on the hook for a loss in the event something goes wrong. So, the underwriting of the bond is a lot more similar to the underwriting of a loan than it is to the underwriting of an insurance policy. The first thing they’re going to look at is your financial position. So, they’re going to look for a balance sheet and maybe an income statement, that could be a personal financial statement or, if it’s a business, a business financial statement. Frequently, they require both, be prepared to disclose lots of financial information. Insurance companies tend to be suspicious when people hold back and, therefore, coming to the table willing to disclose your financial position is going to present you a lot better to an insurance company. Secondly, bonds are often used because of contracts. There could be a contractual obligation that requires that you be bonded. The underwriting involves looking at that contract and evaluating what your exposure is there to make sure the bond can honor those agreements. There will be also a personal indemnity agreement attached to the bond. And, what that essentially says is if that bond has to pay, the bonding company is going to come back to you to recover the money. So, you’re going to be signing a form that says that you are willing to do that, that you are willing to put your personal guarantee on those funds. And, finally, a lot of bonds require collateral, if you’re in a great financial position, they may waive the collateral requirement. If the bond is small enough, they might waive the collateral requirement but, if it’s a large bond and your financials aren’t pristine, and you don’t have a good track record with an insurance company, they’re probably going to ask you to put up a sum of money and that’s usually in the form of a letter of credit in the bank. It can be a fairly large sum of money. So, if you’re getting into a situation that requires a bond, an alternative might be to put a letter of credit out to the other party and say, “Hey, we can hold a letter of credit for you instead of a bond.” And, sometimes, that’s acceptable and can save you the premium. But, those are the requirements for a bond. And, good luck and hope you’re able to place the coverage you need. I’m Jerry Becerra, with Barbary Insurance. You can find out more about me and coverage at www.BarbaryInsurance.com.

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Heffernan Barbary Insurance Services
436 14th Street
Suite 1511
Oakland, CA 94612

415-788-4700
Lic# 6010360

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