![]() The insurance policy is intended to provide for the insurer to pay principal and interest payments to bondholders in the event the issuer defaults. Some municipal bonds are insured by policies written by commercial insurance companies. Entities that provide a public service (such as utilities and public transportation authorities).Private-sector corporations (such as hospitals and universities).The issuers of revenue bonds are generally: To learn more about conduit issuers, please see our section on Conduit bonds. In those cases, while the municipality is the issuing entity, a third party is responsible for payments of both interest and principal. The only exception is when a municipality issues bonds as a conduit issuer. Principal and interest payments for revenue bonds are secured by revenues generated by the issuer or by certain taxes such as sales, fuel, or hotel occupancy taxes. While in many instances, "general obligation" means that the issuer has unlimited authority to tax residents to pay bondholders, there are cases in which the issuer or governmental entity may have limited or no taxing authority. The latter types of bonds are often referred to as "backed by the full faith and credit" of the governmental entity. Some general obligation bonds are backed by dedicated taxes on property, while others can be payable from general funds. General obligation bonds are issued by governmental entities but are not backed by revenues from a specific project, such as a toll road. As a result of these different treatments, it's important to consider all aspects of a municipal bond before making a purchase, rather than relying on its broad categorization. For example, a municipality may issue a bond that does not qualify for federal tax exemption, resulting in the income generated by that bond being subject to federal taxes. While most investors think of municipal bonds as tax-exempt investments, this may not always be the case, as there are instances where the income generated by a municipal bond may be taxable. ![]() However, within these categories, a municipal bond can be structured in different ways, with each variation offering different benefits, risks, and tax treatments. This categorization is based on the source of their interest payments and principal repayments. In general, municipal bonds fall into one of two categories-general obligation or revenue bonds.
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