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What is financial guarantee insurance?

Bonds and Legal Indemnities explained…

Although bonds and legal indemnities are provided by the insurance market they are not really insurance contracts but a form of guarantee.

This type of cover is also known as financial guarantee insurance.

The following is a list of the more common types of bonds and a brief description of their use:

Performance Bond Guarantees

Sometimes referred to as performance bond insurance, these are very often required by the employers of contractors to ensure that they (the employer) have some funds available to cover the additional costs to which they may be exposed should the contractor become insolvent.

Revenue and Custom Bonds

These provide a guarantee to HM Revenue & Customs for the payment of duty and are particularly useful where goods are held in a bonded warehouse.

Retention Bond Guarantees

A retention bond (retention bond insurance) is a guarantee given in place of money that would otherwise be held as a retention.

Road and Sewer Bonds

Road and sewer bonds (road bond insurance) are given to the owners of roads and sewers that statutory obligations in respect of the construction are fulfilled.

Restrictive Covenants (restrictive covenants insurance)

Sometimes referred to as indemnity insurance for restrictive covenants.

Where there are restrictive covenants and rights affecting land or property commonly arising due to lost deeds.

The loss arises when a breach of restrictive covenant has occurred and the beneficiaries of the covenants/rights seek to enforce the same against the insured.

Rights of Access

Where there is no legal grant of a right of way to and from the property.

The loss arises because the legal owner of the access way may seek to prevent the rights being exercised.

This type of guarantee is also known as ‘right of way indemnity insurance’ or ‘public right of way insurance’.

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