What is a lost instrument bond?
When a financial certificate such as a cashier’s check is lost or stolen, the institution that issued the check is held responsible. Therefore, if a duplicate check is issued and the lost or stolen check is deposited, the issuer must pay those funds.
A lost instrument bond is put in place to guarantee that, if the original lost instrument shows up in the future, the bonded party will not be able to cash it as well.
Financial institutions require these bonds to ensure the bank does not lose money and afflict an economic loss by paying the amount of the check’s worth more than once. Other types of financial certificates protected under this bond include stock certificates, check or money orders, corporate bonds, and promissory notes. A complete list of the types of financial instruments may be found here.
Lost instrument bonds can be written in all 50 states and are often required by financial institutions before issuing a duplicate of a financial certificate that has been lost or stolen.
How much does a lost instrument bond cost?
The lost note bond amount is set by the financial institution that issued the certificate and is typically 1.5 times the value of the lost or stolen certificate. Depending on the type of certificate, the premium is calculated at $20 for every $1,000 of coverage. Bonds up to $5,000 are instantly issued and cost just $100, while a lost instrument bond amount exceeding $5,000 is subject to underwriting where additional financial credentials may be required.
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Who is the obligee on a lost instrument bond?
The obligee refers to the financial institution that issued the original document/instrument that has since been lost by the principal. Since the principal is the one who lost the issued financial certificate, they are the one required to purchase a lost instrument bond. A surety company will issue the bond that guaranteeing the money is available to the obligee in the event of wrongdoing by the principal.
What are the types of lost instrument bonds?
Lost instrument bonds can be written for two different types of bonds, open penalty and fixed penalty.
- Open penalty surety bonds have fluctuating market values and could be issued for lost items, such as stock certificates or any other item with a fluctuating market value.
- Fixed penalty surety bonds are required when the lost items have a fixed value, such as certified checks or certificates of deposit.
More information about lost instrument bonds
Lost instrument bonds are generally issued for a one-year term, but the financial institution requiring the bond may ask for a multiple year term. The bond does not renew past the initial term. A lost instrument bond cannot be canceled or released by the surety during its term because the lost instrument could turn up while covered by the specified term.