Surety Bonding for California Adjusters Flashcards
What type of bond guarantees that if a bid is accepted, the bidder will satisfy further bonding requirements?
Answer Choices: Select the Correct Answer
A performance bond.
A bid bond.
A payment bond.
A maintenance bond.
A bid bond. is correct.
EXPLANATION:
One of the guarantees of a bid bond is that if the principal’s bid is accepted, he/she will satisfy further bonding requirements to purchase bonds such as performance or payment bonds.
A surety bond is:
Answer Choices: Select the Correct Answer
An insurance policy.
Used to add coverage to existing insurance.
A form of credit.
Used to indemnify the principle.
The correct answer is: A form of credit.
EXPLANATION:
A surety bond is a form of credit. This is because the premium (paid by the principal) is used to guarantee that the principal will fulfill their obligation or duty.
In order to qualify for a surety bond there are times the principal must have another party sign the agreement. This party agrees to reimburse the surety if the principal defaults. This party is known as:
Answer Choices: Select the Correct Answer
A cosigner.
A fourth party to the bond.
An indemnitor.
An obligor.
An indemnitor. is correct.
EXPLANATION:
The person who agrees to indemnify the surety if the principal defaults is known as an indemnitor.
Which of the following is NOT TRUE regarding surety bonds?
Answer Choices: Select the Correct Answer
They include recovery rights for the surety.
They are non-cancelable.
They include three-parties to the contract.
They are an agreement that in exchange for a premium, the surety will indemnify the obligee.
They are an agreement that in exchange for a premium, the surety will indemnify the obligee. is correct.
EXPLANATION:
The answer choice that is NOT TRUE regarding surety bonds is: “They are an agreement that in exchange for a premium, the surety will indemnify the obligee.” The other three answer choices are true of surety bonds.
The limit of a bond is known as its:
Answer Choices: Select the Correct Answer
Bond penalty.
Face amount.
Bond limit.
Goal.
Bond penalty. is correct.
EXPLANATION:
In surety bonding, the limit of the bond (the maximum amount the surety is liable to pay) is called the bond penalty or penal sum.
