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Surety Bond Insurance and other Illogical Misnomers

April 14, 2011 Comments off

It’s a widely believed “fact” that surety bonds are like insurance policies for companies. While there are several surface-level comparisons that can be drawn between the two, each functions in a fundamentally different way. As a business owner it is critical to understand the opportunities and obligations brought forth by a bond. As a consumer, it is equally critical to be aware of the protection afforded to you by these bonds in the unfortunate case of a default.surety bonds

Business Benefits

New business owners will quickly realize it takes a small mountain of paperwork to get a company up and running. Obtaining a business license often makes up a large part of this paperwork, and for people starting in the brokerage, dealership, contracting, construction or financial industries a bond is generally required as part of the process. The bond functions much like a “pay to play” card where companies must pay for a bond before they are allowed to begin operating or submitting bids for contracts. Having a bond gives companies access to their given field, allowing them to make money. Being a bonded company also comes with a credibility that makes consumers feel confident in selecting your business.

What the Fine Print Says

The way a surety bond is put into use is what really differentiates it from an insurance policy. With insurance, premiums are paid by a consumer to an insurance firm, and should anything happen (a broken bone for medical insurance; a fender bender for auto insurance) the firm pays for corrective action to be taken. In contrast to the two-party insurance system, bonds involve three parties: a principal (the company seeking to operate) secures a bond from a surety (an independent firm) who protects the interests of the obligee (the consumer purchasing or using the principal’s services). In this system, the principal pays for the bond, but does not receive the benefits of it. After securing a bond, the principal is permitted to perform work for clients or customers, who become obligees. Should the principal perform faulty work or fail to deliver on their contractual promises, an obligee files a claim with the surety to receive compensation for the principal’s default. The surety can pay out claims up to the total amount of the bond for any claims it deems to be credible. After all claims have been settled, the surety will contact the principal for repayment of all claims. In this way, the principal winds up paying for any damages or faulty service they have caused and the surety is simply an intermediary that ensures consumers receive fair compensation.

Consumer Interests

While bonds are great for businesses in that they make it possible for companies to legally perform work, bonds provide the greatest benefits for consumers. Surety bonds in their current form originated in the late 1800s when the federal government realized many of its public projects were not being completed adequately by the firms who had submitted a winning bid for the work. By instituting bonds, obligees can rest assured that their contract with a construction team, mortgage company or even health club will be honored in full.

Stock Market Preview for 03/14/2011

March 14, 2011 Comments off

U.S. stock index futures are down this morning but off their lows so far. Trading in the futures has been erratic, and prices may fluctuate considerably as the pre-market session wears on. stock trading

Japan’s markets suffered their worst losses since December 2008, with the Topix and Nikkei falling more than 7 percent and 6 percent respectively. Insurers and Re-insurers with exposure to Japan were down as quake-related losses and tsunami effects became clearer.

Shares of Tokyo Electric lost nearly 25 percent of their value at one point. An area that will also likely see weakness today will be Japanese automakers Toyota and Honda.

Other markets in Asia traded to the upside. India and China both finished positively as investors allocated away from Japan. Lower crude oil prices helped as well. In Europe, shares had initially traded higher after a weekend European Union summit, which saw a large boost to the union’s rescue fund.

The euro is trading higher after that result. The agreement forged to boost the fund did not include some of the asset purchase programs that many traders might have been hoping for, however.

The yen is the only currency in the U.S. Dollar Index basket that is trading lower this morning. The dollar is heading back down toward the lows of recent sessions. The weaker dollar is not helping commodity prices this morning. Gold has gained fractionally, but energy, agriculture, and industrial materials are mostly lower at this time.

In stock-specific news, Berkshire Hathaway announced it would acquire Lubrizol in a deal worth $9.7 billion. Family Dollar Stores announced higher sales figures, and that stock may be active as a result. There are no scheduled S&P 500 earnings for today.

2010 Financial Goals- 6 Month Check up

July 1, 2010 Comments off

At the beginning of the year, I posted our 2010 Financial goals. I figured I’ll do a 6 month check up because that’s better than waiting until say, September, and realize that we’re failing miserably on our goals. Not cool. Here are the goals we set for ourselves:

Goal #1: Pay off at least $3,500 in principal on our mortgage. To date, we’ve paid off $1028.66. I think we’re a little behind, but much closer than I thought we would be!

Goal #2: Raise my 401k contribution to 10%. Um, I think I’m contributing 6% right now?!  I need to just do this.  All it will take is the click of my mouse.

Goal #3: Pay off our car loan. We are well on our way to paying off this debt!  Only about $1500 left.

Goal #4: Come up with a budget and stick to it.  Uh… yeah… still hasn’t happened.

I wanted to set realistic goals so that they were reasonable.  I think we are doing pretty well so far.

How are your financial goals coming along?  Are you still working on paying off debt, or are you in the saving money phase?

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