A bond is a guarantee that aims to ensure compliance with a certain obligation.
The dictionary of the Royal Spanish Academy ( RAE ) mentions that the concept of caution , coming from the Latin word cautio , refers to caution , foresight or care . A bond, therefore, can be a protection or safeguard that is provided to another person.
In the field of law , the guarantee provided to ensure that a certain obligation will be fulfilled is called surety. What a bond does is guarantee the eventual compliance of a sentence.
What is a bond
Surety, in other words, is the guarantee that an individual exhibits regarding the fulfillment of an obligation. The surety can be the presentation of a guarantor or an oath , for example.
In this framework, the promise made by a defendant to maintain adequate behavior in the future, assuming a financial obligation as a guarantee of compliance, is called a good conduct bond . Said financial obligation, in certain cases, can even be assumed by a different subject.
Surety insurance leads the insurance company to assume the obligation to compensate the insured individual for the damages he or she suffers if the policyholder does not comply with his or her obligations with respect to the insured in question.
A type of insurance
Surety insurance , on the other hand, is an insurance contract through which the insurance company assumes the obligation to pay compensation to the insured person for the damages that he or she experiences if the policyholder (that is, the contracting party) does not fulfills the agreement (made up of contractual or legal obligations) that it has assumed with the insured in question.
With respect to the figure of the insured , we must say that it is a natural or legal person, the owner of the interest in the context of an insurance contract, which is signed so that the other party, the insurer, undertakes to compensate it in a damage or to give you an amount in money if you verify the eventuality that is foreseen in writing. In the case of personal insurance, the insured is usually a natural person.
The policyholder , on the other hand, is also known as the contracting party and is the person in charge of stipulating the aforementioned contract and signing the policy , as a symbol of the assumption of the obligations imposed therein, especially the payment of the premium. The premium, in this context, is the monetary contribution that the insured must make in exchange for transferring a certain risk to the company.
When surety insurance is established
Generally, surety insurance is established if one of the parties involved in a contract requires a guarantee from the other to ensure that it will comply with the obligations it acquires. With this type of surety, if the counterparty does not assume its obligation, the insurer does so.
Taking the Spanish legislature as an example, article 68 of the Insurance Contract Law 50/1980 establishes that the policyholder is obliged through surety insurance to indemnify the other party if it does not comply with its contractual or legal obligations to title of penalty or compensation for the damage suffered by your assets. Said compensation must be carried out within the framework established by the Law or the contract itself. In fact, the policyholder must reimburse the insurer for any payments it has issued throughout the contractual relationship.
In other words, the essence of surety insurance is the guarantee it provides to one of the parties that the other will comply with the obligations it has contracted. One of the areas in which this type of insurance is used very frequently is public administration , understood as a system that includes public organizations that are in charge of carrying out administrative functions and managing the State, among others. other entities, both at the local and regional level.