Bond and Insurance

Bond is an agreement or promise to pay a certain amount of money to the bond holder (client) through the bonding company such as a bank or insurance company when the bond issuer (contractor) fails his contractual obligation or specified condition is happened.

Advance Payment Bond (AP Bond) is issued to cover either the simple making of an advanced payment or to guarantee the proper use of the funds advanced that manages the risk of a contractor’s failure to earn the whole of any advance payment from the owner by failing to provide goods and services to an equivalent value. An AP Bond is supplied by the contractor receiving an advance payment to the owner to guarantee the proper use of the advance payment. (Also, called as the Advance Payment Guarantee)

Adjudication Bond is a conditional bond which requires a bondsman to pay out on an adjudicator’s decision.

Bid Bond is issued by a bidder to an owner to ensure that the bidder will undertake the bid terms and conditions when the bidder enter the contract after his proposal is accepted. Generally, the Bid Bond is the one of bid document (proposal document), and will replace the bid bond with a performance bond after the contract is agreed.

Bonds and Notes are two types of debt instruments and used interchangeably that are written agreements between a company and lender defining the amount of money and expected to be paid back including interest over time.

Bond Market is a financial market in which longer-term debt securities are issued (primary market) and traded (secondary market).

Bondsman is a professional agent or organisation who stands surety for a bond or takes responsibility for another person’s obligations by signing a bond to that effect. (Refer to the Bondholder)

Bull and Bear Bond is linked to the price of another security (a bull bond and a bear bond) that is a fixed interest bond whose value at maturity is dependent on the performance of a stock market index.

Bunny Bond is a type of bond that gives the holder the option to receive payments either in cash or as more bonds fungible with the original issue.

Conditional Bond is only required to pay out if a contractor is in default under the underlying contract. In practice, the Conditional Bond may require litigation before any payment can be obtained. The Conditional Bond is also known as a default bond. (Refer to the On-demand Bond)

Convertible Bond is a fixed-rate bond that the holder can convert into a specified number of shares of common stock in the issuing company or cash of equal value.

Currency linked Bonds or Notes are designed to help protect investors where the interest payments and principal repayments are valued according to one currency but paid in another at the prevailing spot rate. (Refer to the Indexed Linked Instrument)

Deep Discount Bond is a bond under which periodic cash flows are made that carries a low rate of interest during the term of the bond.

Default Bond refers to a Conditional Bond.

Defect Liability Bond is a type of surety bond, a maintenance bond - generally an on-demand bond, that is provided by a contractor to an owner to remedy a completed construction project's defects. The Defect Liability Bond is used to ensure that the contractor continues to provide services which the contractor is responsible for repairing or rectifying defects for a specific period of time, the Defect Liability Period, that becomes after the completion has been certified.  (Refer to a Defect Liability Period)

Dual Currency Bond is a hybrid debt instrument with principal payments that can be made in two different currencies.

Equity Linked Bond is a type of the debt instrument that gives the purchaser the right but not the obligation to purchase an equity stake in the issuer.

Equity Warrant Bond is the debt securities that incorporates warrants and gives investors the right (but not obligation) to trade on an exchange or purchase company stock at a specific price in a specified time period.

Eurobond is an international bond issued by a borrower in a foreign country, denominated in a Eurocurrency.

Extendable Bond is a long-term debt security in which the investor has the option at one or several fixed dates to extend the maturity.

Fixed Rate Bond is a type of debt instrument bond with a fixed interest payment remain unchanged for the life of the bond or for a certain number of years.

Global Bond is a type of bond that is sold in several markets at the same time in different currencies with securities fungible between the markets. The Global Bond is typically issued by a large multinational corporation or sovereign entity with a high credit rating and these bonds are sold in various maturities and credit qualities. It is loaned in terms of years and will be paid back at face value plus the interest rate. The Global Bond is sometimes referred to as a Eurobond.

Guaranteed Bond is a debt security bond that includes interest, principal, or both guaranteed by another corporation normally, a parent company.

Insured Bond is a municipal bond whose timely interest and principal payments are guaranteed by an insurance company.

International Bond is a bond that is issued in a country or currency by a non-domestic entity. (e.g., foreign bonds, parallel bonds, etc.)

Municipal Bond is the US term for tax-exempt bond issued by states and political subdivisions (such as cities and counties) to raise funds for certain public works, such as low income houses, bridges, and roads. Municipal bonds are redeemed with interest and either backed by the full taxing power of the government (as a general obligation bond) or their repayment is based on the specific revenue generated by the financed project (as a moral obligation bond).

Offsite Material Bond covers an owner against the risk of paying the contractor for materials being manufactured off-site. If the contractor or sub-contractor becomes insolvent, the owner can claim on the bond for the cost of goods that has been paid for in the event.

On Demand Bond (or Unconditional Bond) is provided by a bank, where the bond is payable to the client simply on his demand, and usually without the client having to provide the bank any evidence or details of the contractor's failure to perform unless the demand is fraudulent. (Opposite of the Conditional Bond)

Performance Bond is a written guaranty from a third party guarantor issued by a contractor or supplier to an owner to protect against loss in the event of default on a contract. The Performance Bond ensures the repayment to the owner when the contractor fails to meet the project obligation or contractual requirement that is usually outstanding for the full duration for the project, and the obligation to pay money is commonly capped at 10% of the contract price. (Refer to the Performance Guarantee)

Perpetual Bond is a fixed income security with no maturity date that is due for redemption only in the case of the borrower’s liquidation.

Rectification Period (or Defect Liability Period) is a duration in which a contractor has responsibility to rectify any defects. The Rectification Period begins after a completion certificate is released, typically for six to twelve months, and a conditional bond such as a default bond may require the litigations before any payment can be obtained.

Retention Bond is a type of performance bonds that protects the risk of the contractor's failure to perform the contract after the contractor finished the work or project. The Retention Bond is an agreement between a contractor and client by a third party known as a bond provider which acts as a guarantor. The Retention Bond states that the bond provider will undertake to pay the client up to the amount in return for the client when the contract fails to carry out the work or remedy defect. Retention monies are normally viewed as a security for the cost of rectifying defective works.

Retractable Bond is a bond by which an investor takes the advantage opportunity of movements in interest rates that issues carrying the option for early redemption at one or several fixed dates.

Structured Bond is a debt security issued by financial institutions that is designed to attract a certain type of investor and/or take advantage of particular market circumstances. The main characteristic of the Structured Bond consists of the general terms of issue that define maturity, repayment and interest rates, typically the structured features are achieved through the use of derivatives with an embedded credit derivative.

Subordinated Bond is a bond that is paid back after other bonds, if the issuer gets into financial difficulty.

Supply Bond is a bond that guarantees principal bills for purchased goods or services under a purchase order.

Surety Bond is an agreement among three parties: a contractor (principal), owner (obligee) and surety (guarantor such as a bank, insurance company or bonding company) that guarantees the payment to owner by surety when the contractor fails his obligation.

Treasury Bond is a marketable, fixed-interest debt security with a maturity of more than 10 years issued by a national government.

Zero-coupon Bond is a debt security that does not involve interest payments during the life of the bond.

Insurance is an agreement in which an organisation or a personal (Insured) pays an insurance company (Insurer) money (insurance premium) and the insurer pays the insured costs as financial compensation of loss, damage, or injury by an accident or incident risks. The Insurance can be one of the risk transfer methods.

All Other Like Perils is an insurance terms and conditions that covers all possible risks even ones not named in a policy.

All Risk Insurance is a type of insurance policy that covers loss for any incident including damage or loss due to theft, fire, water damage, and natural disasters, among others, that an insurance policy doesn’t specifically exclude. The All Risk Insurance offers more comprehensive coverage than property and casualty insurance however, the All Risk Insurance policies may not cover every possible risk or peril, it should be reviewed the policy carefully to understand exactly what is covered and what is not covered. (Also, called All-perils coverage)

Ambiguity Principle is an insurance industry rule that if the expressions can be given more than one acceptable interpretation in insurance contracts against the insurer and therefore in favour of the insured. This is because an insurance policy is an adhesion contract the insured had no input in setting the terms of the policy.

Annuity is a term of financial contract that guarantees a fixed or variable payment of income benefit by life insurance companies or a pension programme for a specified period of time.

Beneficiary is an individual who is entitled to a benefit.

Care, Custody, and Control (CCC) is a term used primarily in liability coverages to cover the property under a property insurance that is not owned by the insured, but which is legally in the insured’s possession or under his control. (e.g., Rental Equipment) A CCC is an event by which the assumption of responsibility for the safety, operating, and maintenance of a fixed asset by the operating organisation that is normally accepted upon mechanical completion of the asset.

Catastrophic Loss is unanticipated losses resulting from large scale, discrete, and recognisable events that used in the insurance industry to quantify the magnitude of insurance claims expected from major disasters.

Certificate of Insurance is a document verifying that used to provide information on specific insurance coverage.

Conditional Exclusion is a clause in an insurance policy or a special terms and conditions of an insurance contract that excludes the certain type of losses or cause of losses unless certain events or actions take place. (e.g., Conditional Exclusion of terrorism)

Construction All Risk (CAR) Insurance refers to the Erection All Risk (EAR) Insurance.

Cost, Insurance, and Freight (CIF) is one of the Incoterms for an international trading, the price of purchase includes a price of good, insurance and freight costs. Seller (Supplier) is responsible for transportation of goods to the designated position, and buyer is responsible for them from that point.

Credit Insurance is a type of insurance policy that pays off an outstanding debt in the event of the policy holder's death, disability, or termination of employment. Normally, the Credit Insurance fee is the monthly cost charging a certain percentage of the credit covered and under certain conditions.

Damage Assessment is an evaluation in commercial and technical of a damage or loss caused by an accident, incident, or natural event to reinstate to the original status, possibly repair or replacement.

Deductible means an insurance term that is a specific amount, or percentage of the insured value, which will be deducted from all losses recoverable under a policy. The Deductible basically reduces the maximum payout, but an excess doesn't need to. (Refer to the Excess Insurance)

Deposit Insurance Scheme is a type of insurance designed to protect bank depositors that is a formal scheme normally established by law.

Erection All Risk (EAR or Construction All Risk (CAR)) Insurance is the comprehensive and adequate protection against all the risks involved in the construction activities and third-party claims in respect of the property damage or bodily injury arising in connection with the execution of a project at the site.

Excess Insurance provides an insurance policy holder (insured) to pay towards a claim or less coverage and/or higher limits. Most insurance company (insurer) allows to increase insured's excess to reduce the insurance premium. In car insurance business, a compulsory excess is applied to a young or inexperienced driver, and an additional excess to pay for a luxury or high-performance car. A voluntary excess covers an amount of excess to be paid by insured. (Refer to the Deductible definition)

FC&S (Free of Capture and Seizure) is a clause in ocean marine policies that excludes claims for losses due to war-like hostile acts.

Fire Insurance is a type of property insurance (Home or Fire) that provides protection against most risks to the property including the industrial facilities, such as fire, theft, and some weather damages. The Fire Insurance is a standard fire insurance policy that usually covers fire due to any cause, subject to some exceptions.

General Average is a legal principle of maritime law that is a provision to share risk, damages and expenses incurred in proportion to the value of exposed cargo contracted between the cargo owner and the ship owner. General Average is now largely replaced by relevant institute cargo clause.

General Damages in insurance market, are the compensation for direct effects of the accident and injury suffered or breach of contract. The General Damages are likely to continue into the future and/or no exact value can be calculated, but the appropriate amount to be compensated as damages. (e.g., pain & suffering, loss of promotion or opportunity, disadvantage, inability to perform certain function, hobby, future loss of earning, etc.) (Opposite of the Special Damages)

Insurance Adjuster is 1) an entity or a person to investigate a fact of claim and decide a liability of the insurance company; 2) independent adjuster acting on the insurance company's behalf.

Insurance Company (or Insurer) is a company who provides insurance businesses.

Insurance Policy is a contract or agreement document for a particular insurance between an insurance company (Insurer) and insurance buyer (Insured).

Insurance Premium is a cost paid by a company or a person (Insured) to protect from financial loss or damage from an accident or Incident.

Insurance Technical Reserve is the technical provisions of insurance company against policy holders or beneficiaries.

Insurance Spare is a type of spare parts identified through a Failure Modes and Effects Analysis (FMEA) that determines the probability of failure (POF) through normal operation and a scheduled Preventive Maintenance (PM) program. The Insurance Spare is a super critical item and needs to be available at any time that may be identified in the company insurance spare parts policies.

Insured is a person or entity to be covered under the insurance policy.

Insurer refers to the Insurance Company.

Liability Insurance is an Insurance to cover or protect in case of a contractual liability issue is happened.

Life Insurance is a contract between an insurer (insurance company) and insured (insurance policyholder) in which the insurer guarantees payment (the benefit) includes life assurance, annuities, personal injury, and disability resulting from an accident or sickness, and permanent health and lifestyle insurance. The Life Insurance exchanges the insurance premium payments from insured to a lump sum benefit to beneficiary by an insurance company (insurer).

Loss Adjuster is an independent entity or a person working for the insurance company to investigate a fact and settle down an insurance claim.

Marine Cargo Insurance is the insurance of properties as they move from a point of origin to final destination. The Marine Cargo Insurance covers the loss of or damage to goods or cargoes while in sea or air as well as subsequent land transportations both domestic and international. (Refer to the Shipping Insurance)

Payment Protection Insurance (PPI) is an insurance product that is designed to cover repayments in the event of unforeseen problems, such as redundant or couldn’t work due to an accident, illness, disability, or death. The PPI policies may vary slightly from policy to policy.

Primary Insurance Amount (PIA) is a benefit for people that would receive retirement benefits at a normal retirement age. At this age, the benefit is neither reduced for early retirement nor increased for delayed retirement.

Reinstate is to restore a facility to its original status after repair or replacement.

Reinsurance is an insurance that is bought by an insurance company (Insurer) to transfer a portion of its risks to another for the large demands from its customers.

Reinsurer is a company that provides financial protection to insurance companies.

Self Insurance is one of a Risk Management method, a risk retention or acceptance, that is a provisional contingency arrangement for an estimated risk money. (Refer to the Risk Financing)

Shipping Insurance is an insurance that applies for goods or materials which is transported by mail or courier services instead of the Marine and Cargo Insurance.

Special Damages in insurance market, are a specific type of damages that is available for the compensation for actual expenses or losses from the accident, injury, or illness as a direct result of the defendant's action or behaviour. A claimant should be able to claim for specific circumstances and have to be compensated the appropriate amount for these sorts of losses. (e.g., medical expenses, transportation costs, loss of income, loss of earning capacity, repair or replacement of damaged property, etc.) (Opposite of the General Damages)

SR&CC (Strikes, Riots and Civil Commotions) is an insurance policy that protects the policyholder from losses due to strikes and other disruptions to civil order. With the passage of the Terrorism Risk Insurance Act (TRIA) on November 26, 2002, all exclusions for terrorism in the Open Cargo Policy were rendered void with respect to "insured losses" as defined in the ACT. Most insurance policies do not cover strikes, so SR&CC riders must be purchased separately.

Terrorism Risk Insurance Act (TRIA) is an act to ensure the continued financial capacity of insurers to provide coverage for risks from terrorism that creates a federal backstop for insurance claims related to acts of terrorism. The TRIA of 2002 is the federal legislation enacted in 2002 to guarantee the availability of insurance coverage against acts of international terrorism.

Federal Deposit Insurance Corporation (FDIC) preserves and promotes public confidence in the U.S. financial system by insuring deposits in banks and thrift institutions for at least $250,000; by identifying, monitoring and addressing risks to the deposit insurance funds; and by limiting the effect on the economy and the financial system when a bank or thrift institution fails. (Source: www.fdic.gov/)