Allen Jones Insurance Agency answers 5 FAQ about bond insurance

Allen Jones Insurance Agency knows bond insurance can be confusing. But, it’s also beneficial.

Serving Seguin, TX, the agency hopes to help by answering five common questions about bond insurance.

What is a bond?

Let’s start with the basics. A bond is an instrument of debt. Essentially, it’s an "I.O.U." between a borrower and a lender. Although there are a variety of types, bonds are used most by governments, municipalities, and companies. 

What is bond insurance?

A bond insurance policy guarantees repayment in the event of default. This applies to the principal and any related interest payments. By purchasing these policies, bond issuers receive several advantages that help in selling their bonds to the public. Bond insurance is also commonly called "financial guaranty insurance."

Who needs bond insurance?

Bond insurance isn’t for everyone. It is mostly seen in tandem with asset-backed securities or municipal bonds. It can also be added to infrastructure bonds, like public-private partnerships and some regulated, non-U.S. utilities.

Why purchase bond insurance?

Bond insurance helps issuers in several ways. Primarily, these policies enhance a buyer’s credit rating. With bond insurance, companies or government entities obtain a much more favorable score because the risk is reduced. An insurer will evaluate this when determining premiums.

How does insurance affect a bondholder?

Bond insurance is attractive to potential investors too. If a bond has an improved credit rating, it is more appealing because bondholders can buy it with greater peace of mind. If a default does occur, the bondholder should face little disruption, as the insurer fills the gap by inheriting the liability and continuing to make payments.

Find an agent serving Seguin, TX

If you have any more questions regarding bond insurance, Allen Jones Insurance Agency can help. Their experienced agents are only a phone call away. Contact them today.