Insurance Insights ~ March 1998

Bonds vs. Insurance Contracts

Spring is right around the corner. With this change in seasons, comes a hubub of activity from our contractors. From bidding jobs to ordering material and lining up additional labor, their days are jam packed and, once again, time becomes a precious commodity.

It is also at this time of year that we receive the majority of calls from frantic contractors in need of contract bonds. Many contractors are totally unaware of the process they must go through to issue a bonding line of credit. While others really aren't sure just what this bond does....they just know they're required to have one to be awarded a particular job.

Bonds are in a class of their own. Although insurance agencies include them in their portfolios, the truth is, they really are not insurance contracts at all.

An insurance policy is a contract that agrees to pay for covered losses on the insured's behalf, in exchange for specific premiums received from the insured. The policy is a two party contract between the insured and the insurer, with agents acting as intermediators. If a loss does occur, the policy responds by attempting to place the insured in the same financial position they were in prior to the loss. In short, the insurance company is accepting the risk of financial loss of the insured in exchange for a premium.

Bonds are three party contracts. One party (the obligee) requires another party (the principal) to guarantee its financial integrity, or performance, as to some specific job or duty. An insurer or bonding company (the surety) provides a bond to the obligee on behalf of the principal guaranteeing that a specified amount will be paid to the obligee (bond penalty) in the event the principal fails to fulfill the obligations of the contract for a specified fee (bond premium).

Although this sounds alot like an insurance contract, losses under bonds are not anticipated. In the event the bond does have to pay because of the principal's default, the surety is entitled to recover everything it has paid on behalf of the principal, from the principal.

There are many types of bonds. The most common is the contract bond issued to contractors. These usually guarantee several things. Bid bonds are issued to guarantee the surety will issue a performance/payment bond if the client's bid for the project is accepted by the obligee. Performance bonds are issued to guarantee that the contract will be fulfilled according to the obligee's specifications. Payment bonds guarantee that all indebtedness incurred by the contractor to vendors/suppliers incurred during the course of construction will be paid. The Maintenance bond guarantees that for a specified period of time, the contractor will agree to maintain, repair or replace work on a given project.

Since the approval process for bonds can take several weeks, it is recommended that all paperwork and requirements be submitted in advance of any request for a bond. By setting up a bonding line of credit, future requests for bonds can be done with less time and effort.

Can You Afford to Be Sued?

Are you someone who thinks that only the wealthy and famous get sued? Well, that is not the case anymore! Take the friend who was helping to paint a house, and injured his heel in a fall. A lawsuit followed, costing the homeowner $1.2 million. Or, how about the 16-year-old who dove into a pool, and hit his head on the bottom. He became a quadriplegic, and a $1.5 million settlement was made against the homeowner.

These and countless other cases involving everyday activities such as golf, skiing, boating, social activities, and auto accidents have traveled through the courts, with million dollar judgements. These awards can be devastating, and they are not happening only to the rich and famous!

So, how do you protect you and your family against the risk of losing all you've worked for? Can you rely on just your auto and homeowner policies? Not anymore! The limits of coverage under these policies may not be adequate, leaving you stripped of your assets and perhaps even having future wages garnished.

A better way to protect yourself and your family is with a Personal Catastrophe Liability (PCL) policy. A PCL policy will provide an additional layer of protection over and above your home and auto policies. It will also provide coverage in certain circumstances that are excluded from your other policies. All this protection is available for only $150-200 per year.

You've worked hard for your home and family. Why not consider a PCL policy as part of your insurance program, so that you can enjoy all that you've worked for.

Know Your Independent Insurance Agent

Did you know your independent insurance agent...

• participates in your community, may attend your church, they may even be your neighbor?
• has your best interest in mind and will offer you valuable information to help you meet your insurance needs?
• is available to you? They work very close with your insurance company and provide access to that company in the event of an emergency.
• is a knowledgeable, professional individual who must attend continuing education classes to keep apprised of new insurance laws, coverages, and regulations?
• has the resources to back up their promise of excellent service, not just by using a toll-free phone number as a support mechanism?
• provides the personal interaction that is so important in a relationship of mutual trust?
• provides you recommendations that is based on discussions with you, and not an uninvited review of your financial portfolio?

We're proud to be your independent insurance agent, and look forward to helping you in any way we can!

Prevent Tragedies by Teaching Children Gun Safety

Just because you do not have a gun in your home doesn't mean that your child will never encounter one. Don't depend on the child-proofing of guns -- gun-proof your children by teaching them about gun safety. We teach children when they are very young to look both ways before crossing the street, and not to talk to strangers; we must also teach them what to do if they find a gun.

Teach your children that if they ever find a gun, they should tell an adult; if no adult is present, tell them to call 911 and tell the police where they found it. However, children are naturally curious, and their curiosity can override all of your warnings. Other ways to promote gun safety are:

• Teach your children the difference between a "toy" gun and a "real" gun.
• Gun lockers can provide a false sense of security -- all it takes is forgetting to lock it once. If you use a gun locker, invest in one with button combinations that automatically locks.
• Never point a gun at another person -- even if you think the gun is not loaded. Tragic accidents have occurred while "just joking around" with a gun.
• Guns are not playthings; always handle them with the utmost respect -- your children will learn not only from the safety rules you teach them, but also by your actions.
• When cleaning or handling a gun in your home, never leave it unattended.
• Always store the bullets in a separate location from your gun. Young children can figure out how to load a gun.
• Invest in a trigger guard or similar device, to help prevent an accidental discharge.

INSURANCE INSIGHTS is an electronic newsletter published monthly by G. C. Weimer Associates, Inc. Information contained herein is accurate to the best of our knowledge and belief as of 3/1/98. If you have a topic of interest for a future issue, e-mail us at info@gcwinsure.com.

|| Home || About GCW || Why GCW || Our Services || Performance Standards || People || Links ||

To contact G.C. Weimer Insurance Agencies, e-mail info@gcwinsure.com (please read this first).