Individuals who are new to the investing world are typically referred to as bonds as a satisfactory first investment. Bonds are financial instruments with fixed-income potential that pertains to a particular loan given to a borrower. The most common issuers of bonds involve governments, and these entities use these financial instruments to borrow money from lenders. The United States has issued bonds to multiple nations and has been operating on a deficit for quite some time now. When companies need more money than a bank is willing to lend, they turn to bond issuers for extra cash inflow as well. For the typical bond investor, bond insurance is a means of ensuring one’s investment receives an adequate payback.
Why Purchase Bond Insurance?
If you have recently acquired bonds, your financial advisor may recommend bond insurance depending on the entity seeking the funds. With this said, bond insurance will allow you to recoup the initial principal, and any interest payments should the entity default. The risk associated with bonds is difficult to determine for an amateur investor. A financial advisor will help you discern the risk and the type of yields that make the most sense. One thing to note with bond insurance is that a bond insurer’s credit rating will take precedent after bond insurance has been purchased. Meaning, the issuer’s bond rating will no longer apply to the bond.