Final answer:
Financial insurance for bondholders is triggered when a bond issuer fails to pay interest or principal, offering protection and compensation to the investors.
Step-by-step explanation:
Financial insurance is a type of insurance specifically designed to protect bondholders in the event that aails to make scheduled payments, including both interest and principal. This kind of insurance policy offers a safety net, ensuring that bondholders are compensated even if the issuing corporation faces financial difficulties that prevent it from honoring its obligations.
If a corporate bond issuer fails to make the payments that it owes to its bondholders, the bondholders have the right to demand that the company declare bankruptcy, liquidate its assets, and use the proceeds to pay them back as much as possible. In financial insurance, the condition that triggers the insurance company's payment obligation to bondholders is when the bond issuer fails to pay interest or principal on its bonds.