Surety Bonds

skips town and doesn't appear on the trial date

A bail bond will be "forfeited" if the principal: a. moves to another community b. does not show up because the trial is postponed c. is arrested on other charges d. skips town and doesn't appear on the trial date

service fee

Another name for the bond's premium is: a. the penal sum. b. the service fee.

guarantor

Another name for the surety is the: a. principal b. guarantor

power of attorney given to the agent by the surety company

Bail bond agents have a limit placed on the amount of money they may post as bail. This amount is determined by the: a. power of attorney given to the agent by the surety company b. principal

Fidelity Bond Blanket position bonds are Fidelity Bonds designed to cover theft by all employees occupying a particular position within the company. There is probably no pressing need for a janitor Blanket Position Bond, but there may be a need for a bookkeeper Blanket Position Bond.

Blanket Position is a type of: a. fidelity bond b. bail bond

may be written for any length of time agreed upon by the parties

Bonds: a. may be written for any length of time agreed upon by the parties b. cannot exceed one year

surety Performance bonds are required by the contract and thus are a type of contract bond. Feedback for question 8

A Performance Bond is an example of a ________ bond. a. surety b. bid c. bail d. judicial

money or inventory stolen before employer discovers that the employee has been stealing The Fidelity Bond (Employee Theft policy) stops coverage at the point the employer knows that the employee has been stealing.

A fidelity bond will cover employee theft of: a. money or inventory stolen before employer discovers that the employee has been stealing b. money or inventory stolen after the employer first discovers that the employee has been stealing

City Treasurer Of the persons listed, the city treasurer is the one most likely to have access to cash. The others are much less likely to be in a position to steal money.

A government official handling money may be required to have a public official bond guaranteeing that the public official won't steal money. Which of the following city officials would most likely have to post a public official bond? a. city treasurer b. mayor's secretary c. mayor d. city surveyor

the employer for the $5,000 The Surety under a fidelity bond always agrees to wait to sue the employee under the indemnity agreement until the employer has sued the employee to collect any amount not covered by the bond.

An employer has just discovered that an employee has stolen $15,000. The employee's fidelity bond covers only $10,000 of the loss. Who has first claim against the employee? a. the surety company for the $10,000 owing under the indemnity agreement b. the employer for the $5,000

the surety and the principal are both released of their obligations under the bond

An obligee fails to make scheduled payments owing to a contractor (principal). As a result, the contractor refuses to continue with the construction. In this situation: a. the surety and the principal are both released of their obligations under the bond b. the penal sum will be paid by the surety to the obligee

Employees

Fidelity Bonds cover acts of: a. customers b. employees

Indemnity Agreement

If a principal defaults and the surety pays the obligee, the principal is liable to the surety under the: a. coinsurance provision b. indemnity agreement

principal The principal is the one who is primarily obligated to perform the job. The obligee is entitled to receive the performance and is the one who is paid if the principal "forfeits" the bond by failing to perform.

In a bid bond, the contractor is the: a. obligee b. principal

the applicant's moral character

Surety bond underwriters consider which of the following to be the most important issue when determining whether to issue a bond? a. the applicant's moral character b. the applicant's professional experience c. the amount of collateral the principal may use to guarantee performance d. the amount of capital owned by the applicant

performance bond The Performance Bond guarantees that a task will be completed on time as per the instructions. Watch out for the Completion Bond which should been called a "Lender's Bond." The Completion Bond doesn't guarantee performance - it simply guarantees that a borrower will use the borrowed funds for the purpose promised.

The Postal Service wants to guarantee that a contractor will be able to complete an addition to the post office according to the contract specifications. The contractor should purchase a: a. bid bond b. completion bond c. performance bond d. contract bond

service fee

The Principal's nonrefundable premium paid for a surety bond is also known as the: a. service fee b. penal sum

guardian's bond

The bond required of a person appointed by a court to handle the affairs of an incompetent person is the: a. guardian's bond b. fiduciary bond

the Surety to the Obligee if the Principal defaults

The bond's penal sum is paid by: a. the Surety to the Obligee if the Principal defaults b. the Principal to the Surety as payment for the bond

the Surety to sue the Principal

The indemnity agreement allows: a. the Principal to sue the Obligee b. the Surety to sue the Principal c. the Surety to sue the Obligee d. the Obligee to sue the Surety

Surety

The indemnity agreement is designed to protect the: a. surety b. obligee

employer

The insured (obligee) under a Fidelity Bond is the? a. employer b. employee

donee The parties to a bond are the principal, the obligee, and the surety. A donee is one who receives a donation - there is no such thing here.

The parties to a bond include each of the following EXCEPT: a. surety b. donee c. obligee d. principal

Surety

The party who agrees to pay the insured (obligee) for loss caused by employee embezzlement under a Fidelity bond is the: a. obligee employer b. surety c. principal employee d. obligor

indemnity

The purpose of suretyship is: a. indemnity b. appraisal

guarantee

The purpose of suretyship is: a. reinsurance b. guarantee

Power of attorney, power account, letter of authority from the Surety Company. New Point: Surety Companies limit the bonding authority of their agents by using an agent-specific account (called a power of attorney, letter of authority, or power account). This prevents a rogue surety agent from bailing every accused criminal out of jail across America. Of course, the accused criminals (the Principals) have no control over the surety agent's bonding authority.

The surety agent's authority is controlled by the: a. Instructions from the Principal. b. Power of attorney, power account, letter of authority from the Surety Company. c. State law. d. Decision of the Insurance Commissioner.

obligee A bond will never pay the principal. The principal is the "bad guy" whose default has resulted in the "forfeiture" of the bond. The Indemnitor will pay the obligee.

The surety may also be referred to as an "indemnitor." If the principal defaults, the indemnitor is obligated to pay the penal sum to the: a. obligee b. obligor

fails to show up for trial

The surety will pay the bail bond's penal sum to the obligee if the principal: a. dies b. fails to show up for trial

performance The Performance Bond (and not the Completion Bond) guarantees that the job will be completed as per the agreement. However, the Completion Bond guarantees to the lender that the money loaned will be used as agreed in the loan agreement. Most bonds have "easy to remember" names; not so for the sneaky Completion Bond.

To guarantee to the lender that a building contractor will complete the construction, the contractor should purchase which Surety Bond? a. performance b. bid c. bail d. completion

performance There are two correct answers: Contract Bond and Performance Bond. However, the Performance Bond is the "best" answer because it the most specific answer. A Performance Bond is one of the numerous Contract Bonds.

To guarantee to the owner that a building contractor will complete the job, the contractor should purchase which Surety Bond? a. completion b. bid c. bail d. performance

surety

Under a bond, the party who pays the insured for default is the: a. principal b. surety

defendant if the injunction was wrongfully issued.

Under default of an injunction bond, damages may be paid to the: a. plaintiff if the injunction was wrongfully issued. b. defendant if the injunction was wrongfully issued.

are 3-party contracts Property policies are two-party contracts (Insurer and Insured). Liability policies are said to be three-party policies because the claim is paid not to the Insured but to the 3rd party victim.

Unlike property insurance policies, surety bonds: a. provide indemnity. b. may involve a binder. c. are 3-party contracts. d. transfer risk.

Completion Bond

Which bond assures that work done by the principal will be free of encumbrances and liens? a. completion bond b. fidelity bond

fidelity

Which bond covers employee embezzlement? a. bid b. fidelity

bid bond

Which bond guarantees that the bidder will sign the contract and provide a performance bond? a. bid bond b. contract bond

The principal is liable to the surety.

Which is true regarding a bond if there is a default on the underlying contract and the surety is obligated to pay the penal sum? a. The surety is liable to the principal. b. The principal is liable to the surety. c. The obligee is liable to the surety. d. The obligee is liable to the principal.

The surety company through the agent's power account/power of attorney/letter of attorney. New Point: To prevent a "rogue" surety agent from bailing every accused criminal in America out of jail, the surety company has a limit on the surety agent's bonding authority. That limit is stated in what is known as the agent's power account, that is, letter of authority, that is, power of attorney. Of course, the accused (the Principal) cannot increase the surety agent's authority.

Which of the following can change the amount of the surety agent's bonding authority? a. The Insurance Commissioner. b. The Principal. c. The surety company through the agent's power account/power of attorney/letter of attorney.

Surety bonds and Insurance policies are both three party contracts See Pages 5-1, 22-3 and 22-4. Property insurance policies are two party contracts. The purpose of liability insurance is to pay a third party for damages the Insured causes to that person or to that person's property. Thus, a liability policy is sometimes referred to as a three party contract. However, the actual contract is negotiated between two parties - the Insurer and the applicant. So it may also be said that liability insurance is a two party contract (between the Insurer and the Insured) with payment to a third. Surety bonds are agreed to by three parties and are always considered three party contracts.

Which of the following is FALSE? a. Surety bonds and Insurance policies are both three party contracts b. Surety companies do not expect to pay losses c. Surety companies may recover paid losses from the Principal d. The purpose of Surety bonds is to guarantee performance

licensed surety company

Which of the following may post a bail bond? a. a licensed property insurance company b. a licensed life insurance company c. a licensed surety company d. a licensed health insurance company

only a licensed surety company Although anyone with cash may post bail, only a licensed surety company can post a bail "bond."

Which of the following may post a bail bond? a. only a licensed surety company b. any individual with adequate cash

a licensed surety agent Friends with lots of money can bail me out of jail but only a licensed surety agent can issue a bail bond. Of course, the Principal (the accused) may post bail but can't "issue a bail bond."

Who can issue a bail bond? a. anyone with adequate funds b. the Insurance Commissioner c. a licensed surety agent d. the Principal