Bond insurance is the type of insurance whereby an insurance company guarantees scheduled payments of interest and principal on a bond or other security in the event of a payment default by the issuer of the bond or security. As compensation for its insurance, the insurer is paid a premium (as a lump sum or in installments) by the issuer or owner of the security to be insured. Bond insurance is a form of credit enhancement that generally results in the rating of the insured security being the higher of (i) the claims-paying rating of the insurer and (ii) the rating the bond would have without insurance (also known as the underlying or shadow rating).

The premium requested for insurance on a bond is a measure of the perceived risk of failure of the issuer. It can also be a function of the interest savings realized by an issuer from employing bond insurance or increased value of the security realized by the owner who purchased bond insurance.

A majority of insured securities are municipal bonds issued by states, local governments, and other governmental bodies in the United States. Financial guaranteed have also been applied to infrastructure bonds, such as those financing public-private partnerships, non-US. Regulated utilities, and asset-backed securities in the United States and elsewhere, as well as non-U.S. municipal bonds. Financial guaranty insurers withdrew for the residential mortgage backed securities market after the 2008 financial crisis.