We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What Is a Warehouse Bond?

By K. Kinsella
Updated: May 16, 2024
Views: 9,308
References
Share

A warehouse bond is a type of surety bond through which warehouse operators are protected against financial losses stemming from lawsuits. Laws in many areas mean that all warehouse operators are required to be bonded while in other places only government-operated warehouses are covered by bonds. Prior to purchasing a bond, warehouse operators typically have to be licensed and in many instances, people who apply for licenses and bonds are subject to criminal background checks.

Typically, a warehouse bond remains in place for a year and the bond term is usually renewable on an annual basis. Warehouse bond purchasers have to make an annual lump sum premium payment to the bond issuer. The purchase premium is normally calculated as a percentage of the financial coverage provided by the issuer. Bonds are generally expensive when compared with insurance contracts because in many instances bond issuers are required to sell bonds to all licensed warehouse operators while insurance companies have the ability to approve or deny insurance applications on a case-by-case basis.

In most instances, warehouses hold goods that belong to parties that do not have an ownership stake in the building. Under laws in many nations, warehouse owners are liable if goods become lost or damaged while in storage. Property owners have the right to sue warehouse operators and although a court can instruct a party to pay damages, a court cannot help a plaintiff collect funds if the warehouse operator lacks the cash to settle the claim. Consequently, governments in many areas require warehouse operators to purchase surety bonds so that the obligation to settle financial disputes falls to the bond issuer rather than the warehouse owner.

Like insurance contracts, warehouse bonds provide property owners with a limited amount of coverage. The property owner is responsible for settling claims that exceed the maximum amount of coverage that the bondholder provides. Bond protection limits are normally adjusted over the course of time to reflect the impact of inflation. In theory, a bond coverage limit should be equal to the value of the property that is typically housed within a particular property. As a back up to a warehouse bond, some property owners also buy liability insurance policies that work in a similar manner to surety bonds but are typically less expensive.

Some warehouse bonds also protect property owners against lawsuits related to injuries. If a warehouse employee or another party is injured while inside a warehouse, laws in many areas enable that individual to sue the owner for damages. Many bonds provide a certain amount of coverage for claims related to property damage and a separate limit for claims related to injuries.

Share
SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Link to Sources
Discussion Comments
Share
https://www.smartcapitalmind.com/what-is-a-warehouse-bond.htm
Copy this link
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.