Bond, Surety Bond

Suretyship is a very specialized type of insurance that is created whenever one party wishes to guarantee the performance of another party.  Although many insurance agencies provide bonds to their clients, the process of obtaining a bond is actually much more similar to securing a loan than purchasing an insurance policy.

These similarities are evidenced by what is normally reviewed by a surety/insurance company before they will approve a bond:

·         Financial Strength/Stability

·         Company History

·         Continuation Plans

·         Credit History

·         Ability to Perform Tasks

The emphasis that’s placed on particular areas will change depending upon the type of bond and the line of work, but you can be assured an underwriter will always look first to the financial health/track record of the company/individual seeking a bond.

Here’s a brief summary of the various types of bonds most common today:

1. Contract Surety Bond

The contract bond provides financial security and construction assurance for building and construction projects by assuring the project owner (obligee) that the contractor (principal) will perform the work and compensate certain subcontractors, laborers and material suppliers, as outlined via their contract. Contract surety bonds include:

·         Bid bonds provide financial assurance that the bid has been submitted in good faith and that the contractor intends to enter into the contract at the price bid and provide the required performance and payment bonds.

·         Performance bonds protect the owner from financial loss should the contractor fail to perform the contract in accordance with its terms and conditions.

·         Payment bonds guarantee that the contractor will pay certain subcontractors, laborers and material suppliers associated with the project.

·         Maintenance bonds guarantee against defective workmanship or materials for a specified period.

·         Subdivision bonds make guarantees to cities, counties or states that the principal will finance and construct certain improvements such as streets, sidewalks, curbs, gutters, sewers and drainage systems.

2.    Commercial Surety Bond

Commercial surety bonds guarantee performance by the principal of the obligation or undertaking described in the bond. Commercial surety bonds include:

·         License and permit bonds are required by state law or local regulations in order to obtain a license or permit to engage in a particular business (contractors, motor vehicle dealers, securities dealers, employment agencies, health spas, grain warehouses, liquor and sales tax).

·         Public official bonds guarantee the performance of duty by a public official, (treasurers, tax collectors, sheriffs, judges, court clerks and notaries).

·         Judicial bonds, also referred to as fiduciary bonds, secure the performance on a fiduciaries' duties and compliance with court orders (administrators, executors, guardians, trustees of a will, liquidators, receivers and masters).

·         Federal bonds are required by the federal government (Medicare and Medicaid providers, customs, immigrants, excise and alcoholic beverage).

·         Miscellaneous bonds include lost securities, lease, guarantee payment of utility bills, guarantee employer

Millhiser Smith has the ability & expertise to handle your bonding needs.  We’re able to guide you through the process, so you are able to focus on managing and growing your business.

To learn more about how Millhiser Smith can assist with your bonding needs, please contact our office and ask to speak with one of our surety advisors.

Flood Protection and Flood Insurance, What You May Not Know...

Tara Widdel,   CIC  CISR

Personal lines Manager, Millhiser Smith Agency, Inc

In our community of Cedar Rapids, Iowa, flood protection is a pretty hot topic. Cedar Rapids was devastated by a massive flood on June 13^th, 2008. We are still rebuilding from that flood and with that comes a lot of hard decisions and discussions on how to go about best rebuilding our city and protecting it from this type of disaster in the future.

About three weeks ago a reporter from the Cedar Rapids Gazette called me to get my opinion on flood protection, and asked if I thought that there was merit to the thought that some of our citizens expressed that flood insurance will protect our community, so there isn’t a need for a formal flood protection system, or flood walls, to be installed along the river. First and foremost, I am a true supporter of flood insurance, and what it can do to help our residents. For those that had flood insurance in 2008 versus those that did not would likely tell you how flood insurance tremendously helped them. With that said, flood insurance is not the answer indefinitely for flood protection for our community. When it comes to relying solely on flood insurance for widespread protection for our residents’ properties and businesses, here are some reasons why flood insurance should not be relied upon as the sole protection against potential future flooding risks:

1.       For those that are not required by their mortgage lender to purchase flood insurance, even though premiums are very affordable if located outside the 100-year flood plain, many opt not to secure a flood policy. So we have many residents not covered with flood insurance because they are not required to have it.

2.       Even when a lender requires coverage for a property, typically they are only requiring that the value of the property that is covered by a loan have flood coverage, and not for the entire value of the property nor do they require contents coverage. If the full value of the home is not required, many times the property is underinsured because the property owner does not opt to fully cover the property for flood loss. This leaves a gap in coverage.

3.       If a property continuously floods, in order for a policy to remain in force for future policy renewals, the NFIP may require additional measures to be taken to protect the home, which are usually costly. This includes raising the structure above base flood elevation, relocating the structure, demolishing the structure or flood-proofing (for non-residential properties only). The flood policy may only assist with a small portion of this additional cost if at all.

4.       Because the cost of flooding across the US is incredibly expensive, the NFIP can only offer basic coverage under the flood policy. It’s not as comprehensive as a homeowners or business owners policy, so the flooded property will not be fully replaced by coverage from a flood policy. A flood policy is meant to get that property back up to a functioning level, not necessarily to replace it to the state it was prior to the loss.

Even with a flood protection wall/ system in place, flood insurance should still be considered, but as you can see it is not the solution for all flood protection issues nor should it be the only solution considered. With weather patterns out of the ordinary, you never know when we could experience our next flood.

What many people in our area may not realize is that flood insurance can be extremely affordable if you are not in a special flood hazard area. For a residential home with a basement located outside the 100-year flood plain, $100,000 in building coverage, $40,000 contents coverage, the annual premium is $304. That equates to about $25 per month.  Also keep in mind, time is of the essence, there is typically a 30 day waiting period before a policy would activate. This 30 day waiting period is only waived if you are required by your lending institution to carry flood insurance.

At Millhiser Smith we are able to write flood insurance policies through the National Flood Insurance Program (NFIP). A flood insurance policy can be written to cover the structure and contents of a home or business.  For more information about flood insurance, please contact the insurance professionals at Millhiser Smith. We are licensed to fully address your questions and to get you a flood insurance quote for your residential home, condo, rental unit (contents only), or business.

 In June 2008 our city was devastated by flood waters, and to this day we’re rebuilding and will be for many years to come. I drive through the flood devastated areas of Cedar Rapids every day, and see firsthand the rubbish left behind, abandoned homes, structures barely standing up, windows and doors boarded shut, and here and there you find a nicely renovated rebuilt home or business that is striving to survive amongst the devastation surrounding it. When you see the rebuilt properties it’s a sign of hope and perseverance, and there are more and more of these properties each day. The homes and businesses that came back after the flood of 2008 had to fight hard, and their fight is not over. I’m encouraged by the strength of our community and its residents, and am proud to say I’m from Cedar Rapids.