TYPES OF BOND INSURANCES IN KENYA

An insurance bond is a contract between three parties—the principal (issuer or owner of the bond), the surety (insurance company issuing the bond) and the obligee (the entity requiring the bond)—in which the surety financially guarantees to an obligee that the principal will act in accordance with the terms established by the bond. For this guarantee, the principal pays the insurer premium as compensation for insurance.

The purpose of bond insurance is to protect third parties in respect of loss suffered as a result of the failure of the insured to perform a task described in a contract between the insured and the third party.

Bond insurance is however quite different from general liability insurance. The main difference between the two is which party gets financially restored. In bond insurance, the interests and investments of the third party are protected whereas in general liability insurance the insured is protected from the financial effects of lawsuits.

There are a variety of insurance bonds some of the most popular ones are discussed below.

Contract Bond

This bond is taken to ensure that obligations set out in a construction contract bond are met with the contractor as the principal and the obligee as the project owner or investor. It is required for commercial and government real estate constructions and purchased by general contractors, large construction companies, individual contractors and government sub-contractors.

The bond can have terms of 1-4 years or be continued until when cancelled and the premium payable typically ranges between 1% – 15% of the bonded amount, which is paid annually by the principal.

Furthermore, there are several types of contract bonds here below;

Performance bonds

These are issued to a contractor as a guarantee that a sum of money will be paid to the employer or third party if the contractor fails to complete the project on the agreed time.

Bid or Tender bond

These bonds are provided by the one who wins a tender as a guarantee that they will supply the good or service for which they won the tender and should they fail, the bond money will be paid to the principal to meet the cost of fresh tendering in the event that the winner of the bond fails to meet the project requirements upon winning the tender.

Payment bonds

That guarantee that subcontractors, suppliers and laborers will be paid by the contractor as outlined in the contract.

• Maintenance bonds which cushion a project owner or investor from financial loss arising from defective workmanship or use of faulty materials for construction. If any problems are experienced due to the workmanship within the 12 – 24 month period, the investor can have the contractor fix the problem or file a claim for damages.

Commercial bond

This bond ensures that companies and professionals that are lawfully required to operate with a specific license comply with all the required codes. A common example of commercial bonds is:
License and permit bonds which are required by the government when a professional applies for a license so as to protect public interests against failures to follow the codes and regulations of a professional license. The most common professions that require a license and permit bond include engineers, contractors, and non-resident professionals.

Fidelity guarantee

This bond protects a company against the loss of customer valuables, employee theft and/or dishonesty, and protects employees from the malpractice of a fiduciary managing their retirement account. It is designed for businesses that have employees who handle cash or similar valuable assets. This is a common product bundled with SME business insurances and other corporate insurance covers.

Court bonds

These are used when a court has the responsibility of administering the affairs of a person unable to do so for themselves for whatever reason. The court appoints a receiver to administer the affairs of the person or the person’s estate. The court asks the receiver to furnish them with a bond which will take care of any maladministration that might take place.

Immigration bonds

Immigration or security bonds are issued to non-Kenyans whose conduct the insurer guarantees. Should one fail to be of good conduct, the insurance company undertakes to pay the cost of deportation/ or the consequences of the bad behavior of the guaranteed person while in the country. In some cases, Kenyans living in other countries are also expected to provide such bonds. This is a therefore a requirement for most nationals applying for work permits and other types of permits to live, work and invest in Kenya.
One can obtain an immigration bond of three year period for an insurance premium of as low as KSh 5,023 shillings in Kenya.

Custom/import bonds

These ensure that dutiable goods on which duty has not been paid do not find their way into the local market contrary to which the insurer will meet the duty payable by the insured. Customs bonds are given for goods in transit through the country or for those produced in duty free zones targeting the export market. Import bonds are given to cover duty for goods imported into the country.

If you are looking for bond insurances in Kenya, get in touch with the team of our insurance experts online today to get additional information and quotes from different providers.