The concepts of bond and insurance are quite parallel, and in the business world both these instruments are often used in collaboration for the convenience of the contracting parties, and also to get better coverage. In the following paragraphs, the meaning of both these terms has been elaborated upon. Take a look.
The term bond essentially implies a financial instrument. A bond which is a contract that expires upon some incidence, or non-happening of an incidence. Suppose party A and party B have a business deal wherein A is supposed to deliver goods of a said quality and quantity to B on a specific date. In order to ensure that the contract comes through, the parties make a bond of say $5000. Here the price is essentially paid by A. In case if A is not able to deliver the said goods as per the contract, then B can claim the bond and revive the money as companion against the non-performance of a contract.
Making a bond to see transaction through, is a common convention across the globe. The specialty of the bond is that money can be claimed in cases where either of the contracting parties, cannot see the contract through either due to incapacity or by planned intention. This phenomenon is known as a breach of contract. In case of accidents and actually unanticipated events, the bond money is usually not claimed. The bond contract consists of the conditions under which the money can be claimed. This entire mechanism is usually mandated by banks and is governed by the mercantile law.
Just like a bond, a business insurance is also an assurance contract, or rather a business security. This contract is a contract of indemnity, meaning that the insurance coverage and financial compensation is provided to the insured person who pays the premium. In the aforementioned example, it is said that the bond usually does not cover the facet of accidents or certain events that are unanticipated.
The insurance contracts the accidental problems that might occur in the contact's proceedings. These losses or incidences are not necessarily breach of contract. Unlike a bond, which is appreciable for a specified transaction, an insurance policy is further responsible for some specific part of the contract, for example, insurance on goods. The insurance is of course provided by an insurance company.
Bonded and Insured
Some businessmen rightfully employ both techniques wherein the probability of un-cushioned loss is nullified. The insurance is taken out on the insurable factions of the contract such as goods. The remaining part, such as breach and non-performance of contract is covered by the bond. In several cases, the liability insurance of either parties is not considered while concluding upon insuring and bond contracts.
The cost involved is of course higher than a single bond or insurance. For example: a pet sitter who is insured and bonded is covered by the bond if the pet is lost, and if it is injured the pet's medical insurance gets activated. The same principle also goes for cleaning agencies, or for that matter any kind of contract or transaction.
The prime objective of bonding and getting insured is obtain cover or protection against any type of financial loss under any circumstance.