When most folks find out that a person needs a bond, they tend to think he’s in trouble with the law. But people in the know might mention that perhaps the young man is in the building business and needs a surety bond for a job he is bidding on. Both are right, but surety bonds go much further. Tons of businesses use them in their dealings all the time.
Surety Bonds for Financial Services
People who have fiduciary responsibility for other’s money are often bonded. This means that a surety company, which is a separate division of a major insurance company, has investigated the reputation, credit worthiness and general character of the individual and found that he or she meets the requirements for a surety bond. When someone is bonded, clients are protected up to the limits of the bond. So, if a broker is handling $25 million in assets but only has a $5 million bond, clients are only protected up to five million. Not, each, but in total. Smart consumers ask their financial advisors such as stock brokers, not only if they are bonded, but how much their bond is for and how much money they have in their investment portfolio. Smart brokerages make sure they are bonded in amounts sufficient to cover all potential claimants.
Banks and other financial organizations bond their employees to protect the business from embezzlement or theft of cash.
Other Businesses Where Bonding Breeds Better Business
However, more businesses than professionals with financial responsibility get surety bonds. Service businesses who have employees deployed in homes often use surety bonds for their employees. The chief reason is if there is a theft of personal belongings or cash from the client, if a claim is lodged against the employer and is valid, the surety bond company pays for the loss. Just as they do with the people involved in financial services, every bonded employee is rigorously investigated before they are bonded. Nevertheless, bonds for these employees are a good deal lower than those in the financial services industry as the likelihood of multi-million dollar losses are a low risk. Industries that use security bonds to gain client trust and promote their businesses as well as protect the employer are:
- Home and business cleaning services
- Carpet and upholstery cleaning services
- Plumbing services
- In-home medical care (caregivers such as medical aides, nurses and physical therapists)
- Landscaping services
Still More Businesses that Use Surety Bonds
But, other businesses also need bonds when working with other companies. For example, your company makes parts for a major manufacturing company. They need 600,000 of your AJ-41R to complete a run for an important company. They stipulate in the contract that you must deliver by a fixed date. As your company has never missed a deadline, has excellent credit and enjoys a great reputation, you get a completion bond, guaranteeing the parts will be delivered by a certain date. Unfortunately, your plant is destroyed by a flood caused by an earthquake before the delivery date. Though it was no fault of yours, you can only deliver a small part of the order. The company you supply has to find another manufacturer of the part needed and pay a premium for a rush order. They expect you to absorb these costs, which can be over a million dollars. Because the contract terms required you to obtain a surety bond for the order’s timely completion and delivery, the bonding company takes care of all costs up to the limit of the bond.
If your business provides financial services to others, in-home services, urgent order fulfillment for other businesses or has the potential for high financial risk, talk with your trusted business insurance advisor about the protection you get from being bonded or having bonded employees. Your advisor understands the risks your business faces and his or her advice is from an educated and experienced perspective.
Learn more today. Call Red Gorman Insurance at (214) 374-9997 for more information on Arlington surety bonds.