Municipal Bond Forum
What bond insurance does
Q
Can you explain what insurance is and how it works? What is the risk? Is a bond with insurance as safe as a CD with FDIC insurance?
A
James A. Klotz responds:
In addition to being secured by the issuer through dedicated revenue streams, certain bonds are insured by private insurance companies for the timely payment of principal and interest.
The insurance companies carry ratings based on their financial strength.
This private bond insurance should not be confused with FDIC, which is deposit insurance backed by the full faith and credit of the federal government.
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