Insured Municipal Bonds – Are They Safe To Invest In?
Insured municipal bonds are very popular with some investors, but are these bonds a safe investment? When you buy municipal bonds there is always the risk that some event beyond the control of the bond issuer will cause a default, and this means a loss of interest payments and possibly even the principal amount paid for the bond. Insured municipal bonds are insured by a commercial insurance company or organization, with the interest and principal payments guaranteed by the insurance subject to any limitations or restrictions if there is a default on the part of the bond issuer. Usually these bonds offer a lower yield and rate, because there is virtually no risk of a missed payment or financial loss.
Municipal bond prices reflect the risks involved for investors. Bonds which involve a high degree of risk typically offer a high yield, while insured municipal bonds carry few if any risks, so the rate of interest paid is smaller. For many this means that these bonds are safe, but there is another factor involved. The insurer of the bond also plays a role in the level of risk investors face. Just like there are numerous types of municipal bonds, there are also many types of insurance company. If the insurer of the bond is not trusted then the insurance offers no guarantee.
Before investing in municipal bonds which are insured research the insurance company standing behind the bond payments. Look at the financial status of this company, to make sure that the insurance company is not facing financial difficulty or other problems. Insured municipal bonds can be a very safe investment, when the right bonds and insurance companies are chosen. The only way to find the best choices is to evaluate all of your possibilities, and look at the underlying insurer as well as the bond itself.