What are Insurance Bonds?


Surety bonds and bond insurance
The extra protection you need when going into third-party contracts is bond insurance.

Here’s how to understand what an insurance bond is:

An insurance bond is a third-party contract where the insurer agrees to pay any losses. The inability to do specific acts or if any criminal acts occur can make it necessary to have an insurance bond. 

These forms of bonds include fidelity and surety bonds.


A few important terms to consider that will better help you understand how an insurance bond works: 


  • Obligator/Bond purchaser: this is you/the person paying for the insurance bond premium. You should perform the said task. 

  • Insurer/Surety: this is your insurance company. Therefore, they pay any losses to third parties if the obligor does not perform said task or pay accordingly.

  • Obligee: this is the third party. They are the ones receiving the benefits of the insurance bond. 

It’s important to note that the party paying the bond premium has an obligation to perform the task.

If you don’t, the insurer (your insurance company) pays any losses to the third party (or the person receiving the benefit of the bond) and this is very important in understanding insurance bonds. 

Therefore, this causes the obligor to reimburse the insurer for the amount lost. In essence, the principal is also the obligation. If there are any losses, the surety pays the losses to the obligee or the third party. 

Insurance bonds are meant to give a financial guarantee that the individual and/or business buying the principal (bond) will, reimburse the third party if the bond defaults, if the obligations set are unfulfilled, or if a claim is made against the obligor by the obligee. 


What is the difference between an insurance policy and an insurance bond?


Confused construction worker about bond insurance.
Know the difference between business insurance and bond insurance.

In technical terms, bonds are not insurance. Bonds are agreements involving three parties, not just you and the insurance company. Unlike traditional insurance policies. 

An insurance policy is an agreement between you, the insured, and the insurance company. Therefore a bond is an agreement between you, the person purchasing the bond, the person who receives the benefit of the bond, and the insurance company. 

When written, insurance bonds are not expected to have any loss.

They are meant to be an extra layer of protection if the obligor does not meet the terms of any employment/contracting agreements. 

To clarify, an insurance bond supports the financial stability of the individual and/or business purchasing the bond. It establishes trust that the obligor will repay the insurer. This will only happen if it becomes a claim from the third party for uncompleted work. 



Learn how different types of bond insurance can protect your construction and contracting business.
For all lines of work, bond insurance can protect you.

What are the different types of Bonds Insurance?

There are many different ones to consider regarding insurance bonds, based on your business and line of work.

The more common insurance bonds include surety bonds, license and permit bonds, contract bonds, and fidelity bonds.

Surety Bonds Insurance 

The type of bond is a third-party bond that protects any losses caused by one party not meeting any obligations within a contract. Therefore, if you fail to pay the other third party or do not complete the work, your insurance company (the surety) would then pay any fees or fines incurred to your customer or the obligee. 

License and Permit Bonds Insurance 

These types of bonds are requirements per governmental agencies and are a form of surety bonds. Therefore, all bonds in this category can be due to federal, state, and local levels of licensing processes for your business. License and permit bonds act as a way of proving your business will act accordingly to any laws and regulations. This protects your business and your customers. 

Get your licenses and permits approved with bond insurance.

Examples of license and permit bonds include:

  • Mortgage broker or lender bonds

  • Professional licensure bonds

  • Notary bonds

  • Private Investigator bonds

  • Auto dealer bonds

  • Auctioneer bonds

  • Collection Agency Bonds

  • Street repair, demolition, or street opening permit bonds 

  • Travel agency bonds


Contract Bonds Insurance

To clarify, contract bonds are also known as performance bonds. They guarantee the completion of any contractual terms you agree on. This form of insurance bond is typically purchased on a project-based account.

Most importantly contract insurance bonds list all important materials needed for the project. On the other hand, they also list an agreed timeline on when the project will be completed.

Contract bonds protect the customer from uncompleted projects in instances where the contractor goes bankrupt.

Examples of contract bonds include:

  • Bid Bonds

  • Performance Bonds

  • Payment Bonds



Fidelity Bonds Insurance

These types of bonds protect policyholders from fraudulent acts. This can include protection from theft, damages, and crime-related acts done by your employees.

Examples of fidelity bonds include: 

  • Employee dishonesty/theft bonds

  • Janitorial service bonds

  • Employee Retirement Income Security Act Bonds (ERISA) 

  • Probate or Executor bonds


Does my business need bonds insurance? 

Ultimately, it all comes down to your business and what you need to fulfill your contractual and regulatory requirements.

In some instances, you may be have to legally be bonded per your state, an industry association, or a contract you already signed. To know if your state requires insurance bonds based on your line of work, learn more with JW Surety’s interactive map

Having an insurance bond means more protection if you perform services in someone else’s business or home, you/your employees have access to money, or if you are involved in any construction work.

How do I get bonds insurance?

LKA Insurance Agency works with all businesses, including construction and contracting to provide insurance bonds.
LKA Insurance Agency can help you get the bond insurance you need for your business today.

At LKA Insurance Agency, we will work directly with you to finalize exactly which insurance bonds are best for you and your business.

We walk you through the process of any applications necessary. Including guiding you in obtaining any financial statements, resumes, bank references, and other details needed for the application.

If you need an insurance bond to satisfy any regulatory or contractual obligations, LKA Insurance Agency can help you right away.

Contact us today for your free insurance bond quote.