Some documents have incredible value – cashier’s checks, stock certificates, car titles, etc. When these documents get lost, the institutions that issue replacements are at risk of being scammed, which is why lost instrument bonds (also called lost note bonds) exist. This post tells you everything you need to know about this important type of surety bond.
What Does a Lost Instrument Bond Protect?
All surety bonds are designed to protect one party from the misdeeds of another party. A lost note bond is no different. Imagine that a bank writes you a $10,000 cashier’s check. Then you lose the check before cashing it and return to the bank for a replacement. They can write you a new check, but now there will be two $10,000 checks written on the bank’s accounts. If the first one turns up and you cash it, the bank would take a $10,000 loss. Lost instrument bonds protect banks (or anyone that issues valuable documents) from unfair losses resulting from valuable documents being cashed multiple times.
What Instruments Apply?
It’s up to the institution that issues the instrument to decide whether a bond is necessary for replacement, so there are no universal rules. That being said, bonds are often involved when replacing these kinds of instruments:
- Cashier’s Checks
- Property Deeds
- Stock Certificates
- Car Titles
- Loan Shares
- Savings Bank Books
- Life Insurance Policies
- Corporate or Municipal Bonds
- Real Estate Certificates
What Parties Are Involved?
If you lose an important document, contact the issuer immediately to inquire about a replacement. Most will be happy to issue a replacement as long as you have acquired a lost instrument bond first. You will likely need to wait for a set period (often 30 days) before the bond can be issued to ensure the instrument doesn’t turn up. When the bond is issued, it’s an agreement between three parties:
- Principal – You are the principal and the party responsible for purchasing the lost note bond.
- Obligee – Whoever issues the replacement instrument is considered the obligee.
- Surety – The company that issues and underwrites the bond is known as the surety.
Ideally, you secure a bond, the obligee replaces the instrument, and the original never reappears. However, if the original does turn up and you cash it, the obligee can file a claim with the surety for the instrument’s value. As long as the claim is valid, the surety will compensate the obligee, then collect the same amount from you, the principal.
What Costs Are Involved?
It costs you $100 for a lost instrument bond that covers instruments worth up to $5,000. Beyond that, every additional $1,000 added to the instrument value adds $20 to the bond premium. Below the $10,000 threshold, bonds are available without underwriting. You supply a statement detailing the loss of your instrument, pay the related fees, and the bond is immediately active. Above the $10,000 threshold, you will need to submit a more detailed application, including your credit history, so that underwriters can evaluate your credit risk.
Are There Multiple Types of Bonds?
Lost instrument bonds fall into two categories: a fixed penalty surety bond or an open penalty surety bond. The parties are the same as well as the claims/payment process. All that differs is the type of instrument these bonds apply to.
- Fixed Penalty Surety Bonds – These bonds apply to instruments with a fixed cost, like a cashier’s check. The bond value matches the instrument value.
- Open Penalty Surety Bonds – These bonds apply to instruments with a changing value, like a stock certificate that can gain or lose value with the markets. The bond value fluctuates with the instrument value.
How Long Do Bonds Last?
Lost note bonds typically last for one year until they expire. Depending on what the obligee requires, the principal will be able to let the expired bond lapse or will have to renew it by repaying the premium. In most cases, these bonds are a one-time expense, but that’s not always the case, particularly when expensive instruments are involved.
Will I Be Approved for a Bond?
Since there’s no underwriting necessary for bonds under $10,000, everyone gets approved. As long as you’re able to pay the associated costs, you can get a bond that qualifies you for a replacement instrument. If you need a larger bond, approval depends on your credit. Rather than denying people with poor credit, quality surety companies will accept the higher risk in exchange for slightly higher premiums.
Take the Next Steps
Losing an instrument is incredibly frustrating, but securing a bond shouldn’t be the same way. Viking Bond Service has all the resources you need, including stellar support and service. As noted earlier, you will need to wait 30 days after reporting the lost instrument to secure a bond, but when that time is up, we can get you a bond almost immediately. While you’re waiting, learn more about how this whole process works using our free resource – all about surety bonds.