Lost Instrument Surety Bond
If you haven’t heard the term before, these bonds do not refer to you losing your violin or your flute but involves the loss of a financial instrument such as a deed, a certificate of deposit, or a cashier’s check. When such an instrument is lost and you request that the issuer replace the original, there must be some guarantee to the issuer that it will not lose money if the original eventually resurfaces.
That guarantee will often take the form of a lost instrument bond, which serves as a protection to the issuing party that it will not suffer losses when the lost check or other document is found. In the case where you have lost a check and purchased a bond, and then the original check is found, you would need to take that check to the issuing organization and simply turn it in. Failure to do this could cause a claim to be made against the bond by the issuing company, and you would eventually have to pay this amount.
Types of lost instruments
There are many objects which can be considered lost financial instruments, including a cashier’s check. However, there are several other objects as well which can be bonded under the lost-instrument bond umbrella, such as promissory notes, municipal bonds, corporate bonds, life insurance policies, real estate certificates, and promissory notes.
When any of these financial documents are lost or destroyed, you can seek to have it restored by the issuing organization, and at that time it would also be a good idea to purchase this kind of bond. It’s possible that the issuing organization would require you to purchase the lost instrument surety bond so that it can be protected against potential losses if the original were to be found.
The costs are determined by the organization which issued the document originally, and this is typically an amount equal to 1.5 times the value of the certificate or document which was lost. The cost to the bond purchaser will amount to a one-time premium which represents the degree of risk taken by the surety company in underwriting the bond.
A fairly typical guideline of cost is $20 for every $1,000 of the cost of the original certificate. So for example, if a promissory note for $50,000 were lost, you would probably have to pay in the neighborhood of $1,000 to the surety company to purchase a bond covering the amount of the certificate. It’s also possible that the amount charged to you for the surety bond could be higher if your credit score is less than ideal because that would constitute a greater risk for the surety company. For the most part, however, when amounts of less than $5,000 are involved for the loss of a financial instrument, you can expect that the cost of this bond will be set at $100.
Lost Instrument Bond Definition
Before any kind of bond can be purchased, the object in question must have been lost for at least 30 days, and after that time has expired, one of two types of lost-instrument bonds may be purchased. The first type is known as an ‘open penalty’ surety bond, and this type of bond is issued when the lost instrument’s value can increase or decrease, for instance as with stock certificates.
The other type is known as a ‘fixed penalty’ surety bond, and this, of course, would apply to cases where the value of the lost document is fixed, such as with a certificate of deposit or a cashier’s check. When you obtain your bond, it’s a good idea to immediately copy the document, and then send the document original to the institution which has required you to make the bond purchase.
Almost all L.I. bonds cover one year, but the financial organization requiring the bond purchase may ask that you purchase a bond for a longer time frame. This points up the importance of notifying the financial organization if the original document is discovered again. When applying for your L.I. bond, you will be required to specify the exact date when you lost the financial instrument, as well as the details surrounding the loss. Lost instrument bond definition, and other lost instrument surety bond information can be gotten by talking to one of Surety by NFP’s experienced bonding agents. Call us today with any questions you may have.
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