As many people may know, a surety bond is a written agreement guaranteeing the satisfactory performance of a contractual obligation. This agreement provides for monetary compensation in the event that a principal fails to accomplish the job per specifications in the bond. There are many who may confuse surety bonds with insurances. They may think that their purpose are alike, but this is not the case. Here’s what you need to know about surety bond insurance.
There are three parties in a surety bond contract are:
- The Principal – the party that purchases the bond
- The Obligee – the party that requires the bond
- The Surety – the party that issues the bond
Do I need a surety bond?
Do I need a surety bond? When do I need it and what are the risks if I don’t get one? These are questions which you may have pondered. Well, have no fear! Below we have highlighted some situations where you may need a surety bond.
- Licensing: Many industries require you to get a surety bond. This ensures that the applicant adheres to specific industry regulations. If they do not adhere to, then the someone may file a claim.
- Specific to the Construction Industry: Almost all state and federal construction projects require a surety bond. In fact, there are multiple surety bonds which are required, from bid bonds to performance bonds, payment bonds and subdivision bonds.
- Reputation: Having a surety bond helps clients and customers have faith in the applicant. It also assures them that you have faith in your business skills. And that you are willing to guarantee their success, through financial backing. In other words, you know you’re not going to mess up! You’re even willing to bet on it by purchasing a surety bond!
- Protect your business: But surety bonds do more than protect your clients and customers, they can, in some industries, protect your business. For example, a fidelity bond protects your business from your employees in the case of theft or fraud. A service bond can also protect you from third party transgressions. Requiring businesses that you work with to be bonded, will help to protect your business.
What do surety bonds cover?
Surety bonds help to promote good business faith. Obtaining a surety bond will protect your business, promote your reputation and open your business up to more clientele.
Surety bonds cover various things. These include specifications as to when the principal must make payments, protection against fraud and what will happen if the principal is in violation or breach of contract. It is also important to know that each state has its own surety bond form.
Surety Vs Insurance
Surety bonds are essential as a risk alleviation tool. It’s important to know that surety bonds and insurances are two different tools. Consumers often find themselves in confusion because the terms “surety bond” and “surety insurance” are frequently interchangeable.
In order to clarify the difference, one must know that surety bonds are a form of credit. Many believe that surety bonds are the same as insurances because they involve payment when there is a violation of the contractual obligation. However, with surety bonds, the risk is with the party purchasing the bond or the principal, and not an insurance company.
In the case of insurance, the party obtaining the insurance pays a premium regularly. This is so the insurance holder can seek compensation by the insurance company in the case of a loss per the specifications noted in the insurance policy. The insurance company reduces the risks the insurance holder faces in return for premium payments made on a regular basis.
An insurance policy is a two-party agreement between the insured and insurer. It transfers risk from an insured policyholder to an insurer or insurance company.
Get Bonded Today
Surety Bond Professionals is an experienced bonding agency offering a full range of bonds nationwide. We pride ourselves on our great reputation, which we have built up over the decades. We work fast and efficiently to get you the best surety bond that we can and to guide you through the process, and educate you so that unsubstantiated claims bear no weight.