Chapter 7A Flashcards
Bonds (22 cards)
Which of the following entities would be responsible for ensuring that someone fulfills an obligation?
A) Surety
B) Principal
C) Obligee
D) Surety & Fidelity Court
A
What is a surety bond?
This is in my own words but it’s a three party agreement. There are:
Principal: the one(s) getting the insurance
Insurer:….y’know
Obligee: a third party that ensures the insurer actually does their job, so like the gov’t or smth
There any many kinds of bonds. Which type of bond is intended to protect the public?
A) Performance Bond
B) Maintenance Bond
C) Statutory Bond
D) Fidelity Bond
C
Considering the characteristics of a surety bond or surety relationship, all of the following are true except one.
A) Just like insurance, some losses are expected so the bond premium paid to the surety is pooled together and used to pay out any losses to obligees from principals who default.
B) The bond limit (sometimes called penalty) is the amount paid by the surety to ensure the fulfillment of the obligation
C) Once a surety relationship is in place, the principal cannot abandon the obligation
D) Unlike insurance, the surety can subrogate against the principal to recover all monies
A. Unlike insurance policies, no losses are expected and so no “premium” (in the traditional sense) is charged
A surety is sometimes referred to as a 3-party agreement. The party to whom the bond guarantees something is the…
A) Principal
B) Obligee
C) Surety
D) None of the above
B
In general, there are 2 classes of bonds, fidelity bonds and surety bonds. Which of the following is not an example of a fidelity bond?
A) Administrator & Executor Bond
B) Guardianship Bond
C) License and permit bond
D) Bankruptcy Trustee Bond
C
What is a fidelity bond?
Basically it’s a kind of business insurance employers can get in case of losses caused by the employees fucking up (think like taking money, doing their job half assed, etc etc)
Specifically if the employee was doing their job wrong! If it’s smth like a car crashing into the store during their shift obv they can’t control that
When it comes to fidelity bonds, the fiduciary is the…
A) Surety
B) Obligee
C) Principal
D) Guarantor
C
When an administrator is appointed to handle the estate of a diseased, the bond guarantees that they administer the estate as per the law. Which of the following statements is/are true of an administrator/executor’s duties?
A) Collect & preserve the estate’s assets
B) Provide an accounting to the court
C) Pay all debts and distribute the remaining assets
D) All of the above
D
There are many kinds of trustees/administrators. Which of the following bonds would you purchase if you were responsible for the administering of the assets of minors or those incapable of handling their own affairs?
A) Administrator & Executor Bond
B) Guardianship Bond
C) Bankruptcy Trustee
D) Childcare Administration Bond
B. Notice how it specifies “minors OR those incapable of handling their own affairs”?
When it comes to qualifying for Surety bonds, underwriting is pretty strict. The ability of a contractor to complete the contract is called…
A) Character
B) Capacity
C) Capital
D) Capability
B
When it comes to qualifying for Surety bonds, underwriting is pretty strict. The personal and professional history of the contractor is called…
A) Character
B) Capacity
C) Capital
D) Capability
A, duh
When the surety underwriter is considering a contractor’s Capital, they would look at all of the following except one.
A) Net Worth
B) Working Capital
C) Accounting Systems
D) Other Liabilities
C. They would also look at debt and cash flow. Accounting systems fall under Capacity
What does a bid bond do?
Guarantees that the contractor intends to follow through at the tendered bid price
For bid bonds, all of the following statements are true except one.
A) The bond penalty is usually equal to 10% of the tender price
B) If the principal defaults, the surety will cover the cost of any project delays and any costs required to retender the project
C) If the principal defaults, the surety will pay the difference in price between the old bid and the new winning tender
D) The Obligee must sue the principal before the surety will pay
D. Unlike liability insurance, no lawsuits are required with bonds. The obligation is triggered when the principal defaults
If an obligee wants to ensure a job is completed correctly, they would ask the principal to purchase what?
A performance bond
When it comes to performance bonds, all of the following statements are true except one.
A) The performance bond limit is usually 50-100% of the contract price
B) The performance bond guarantees that the principal will complete the job properly and on time, that there are no faulty work/materials in the project and that they will fulfill their financial obligations
C) If the principal defaults, the surety must use a new contractor to complete the project (provided the Obligee approves this new contractor)
D) The Surety will monitor the Principal to reduce the probability of a default
C. The Surety may also use the same contractor, if the failure was outside of the Principal’s control
The Labour & Materials bond is reponsible for…
Guaranteeing that suppliers of labour and materials will be paid
The Labour & Materials bond limit is usually how much of the contract price?
50-100%
True or false:
For warranty periods of less than 1 year, a Maintenance bond is not needed because the performance bond provides enough protection
True. The performance bond already provides a short-term guarantee (less than 1 year) that there are no faulty works or materials in the project.
Many types of businesses require a license & permit bond in place before they are allowed to do business. This bond guarantees…
That they will perform their duties according to law/regulation
What bond guarantees the payment of all taxes and import duties?
Customs & Excise Bond
