A bond is a contract issued under seal by an insurer which commits them to paying a sum of money if the conditions of the bond are broken. Bonds are specialty contracts i.e. contract under seal or contract of guarantee. This is unlike insurance policies which are simple contracts. Bonds are mostly issued by insurers, but can also be issued by any other organizations or persons e.g. a bank. An insurance company issuing a bond agrees to pay a sum of money if the insured fails to perform a specific duty or fails to perform that duty properly. Some examples of bonds are:
- Performance bond: This type of bond guarantees performance of the contract, and an agreed fixed compensation will be payable if specific conditions are not met. This type of bond is common in the construction industry.
- Bid or Tender Bond: A bid or tender bonds is used when the cost of new tendering has to be incurred should the highest bidder fail to take up an offer.
- Immigration or Security Bond: Immigration or security bonds are issued to non-citizens whose conduct insurers guarantee. Should one fail to be of good conduct, an insurance company undertakes to pay the cost of deportation and/or the consequences of their bad conduct.
- Customs Bonds: Customs bonds ensure that dutiable goods on which no duty has been paid do not find their way into the local market. Should the goods find their way into the market; the insurer will meet the duty the insured has not paid.
