Saying “I’m good for it, trust me” works well when you’re promising to help your buddy move
But in the business world a promise often needs a bit more weight behind it. When a service is performed by one business for another, a Surety Bond can help to provide trust that the job will be completed correctly.
How Do Surety Bonds Work?
Surety Bonds are a type of insurance protection that act as a promise by one party to be liable for the potential failure of another. They form a legal agreement between three parties:
- The Principal, or the individual or business who has agreed to perform a professional service. This is the party that pays for the Surety Bond.
- The Obligee, or the person/business the service is being performed for and risks damage if the service is not performed correctly.
- The Surety, generally an insurance company, the party that provides compensation to the obligee if the principal does not complete the service or does so in a way that’s incomplete or incorrect.
A big difference between Surety Bonds and other types of insurance is that the Principal retains the risk, not the insurance company. If the principal fails to complete the work as agreed upon, the obligee is able to recover damages from the surety up to the bond amount, and the principal is required to pay the surety back.
Types of Surety Bonds
There are nearly as many different types of Surety Bonds as there are contracts. A few of the most common are:
- Commercial Surety Bonds are generally required by the government or by law for businesses in certain industries in order to receive licenses or permits. The government takes the role of the obligee, which helps ensure that the business adheres to regulations. These types of bonds are often considered lower risk and are easier to qualify for.
- Contract Surety Bonds ensure that contracts are completed according to their terms. They’re most common in the construction industry in the form of bid bonds, which require a contractor to accept a contract if their bid is accepted, performance bonds, and payment bonds.
- Court Surety Bonds are typically used to protect people and companies from losses during court cases. They’re also used to ensure an estate administrator works in the best interest of an estate, or to help defendants in criminal cases post bail.
Again, there are many different kinds of Surety Bonds beyond these types. An experienced agent can help you learn more about what bonds might be available for your situation.
What Do Surety Bonds Cost?
As with most insurance, the cost of a Surety Bond is influenced by a variety of factors, like the type of bond, the amount of risk involved, the principal’s credit score, and the length of time the contract is in effect.
Our Team has the experience and knowledge to take the guesswork out, and make sure you get the most important product of all: Peace of mind. Talk to our agents today to learn more and for help finding the right Surety Bond for your business or project.