Surety Bonds Vs Subcontractor Default Insurance
We started a conversation on our Facebook page the other day about the differences between surety bonds and subcontractor default insurance. We wanted to delve in a little more to help you decide if a subcontractor default insurance (SDI) or surety bond is the best way to protect your business. SDIs have become popular since 1996 as a way for contractors to manage the risk of working with subcontractors. Basically, through SDIs, the contractor is accepts and manage risks that occur if a subcontractor defaults on their contractual obligations. The trade off is, that the benefits of a performance or payment bond are not applicable in SDIs. Below we break down the different benefits and risks. One of the differences between surety bonds and SDIs are that there are specific regulations in the surety bond industry, which the state insurance department enforces. Bond forms are also standard (although are negotiable) in a surety bond. Whereas, the insurance company mandates which form the parties will use with an SDI. A surety bond also has the benefit of protecting all three parties (obligee, principal and surety). An SDI is a two party contract between the insurer and principal. The premium is...
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