A surety bond is a legally binding contract that ensures all parties fulfill their obligations. With over 50,000 different types of bonds in the United States, it’s easy to get confused! Fortunately, there are many tools and resources to help you determine what type of surety bond you need.
Hopefully, some of the following information will dispel some of that confusion.
Let’s discuss in more detail the purpose of surety bonds, along with some popular types of bonds.
What are Surety Bonds?
You can think of a surety bond as being a contract between three parties - the principal (you or the one being bonded), the obligee (the one requiring the bond) and the surety (the insurance company).
Principal. The individual or business who purchases the bond to show that they guarantee future work performance.
Obligee. The entity that requires the bond. Usually, these entities are government agencies that intend to regulate certain industries and reduce the risk of financial loss to the entity.
Surety. The insurance company that backs the bond, usually with a line of credit. This credit will only be used if the principal fails to complete the task.
Four Main Types of Surety Bonds
Commercial surety bonds. The purpose of this bond is to ensure that licensed companies follow all required codes. These bonds are generally used when working with companies that operate within specific licenses. Commercial surety bonds are best for licensed professionals.
Contract surety bonds. Contract surety bonds make certain that the obligations of a construction contract will be fulfilled. These bonds are typically used for general contractors, construction companies and subcontractors for federal, state & local governments. They are usually required by commercial and governmental real estate projects.
License and permit bonds. License and permit bonds are often required by municipalities or other public bodies. They guarantee to the obligee that all statutes, state laws, municipal ordinances and regulations will be followed.
Public official bonds. This type of bond ensures that all elected or appointed members of a public entity perform their jobs on a “faithful performance” basis. In other words, public official surety bonds guarantee that public officials shall faithfully perform their duties and honestly account for all the money and assets they handle.
At Danskin Agency, we represent many surety companies and can help you get the surety bond you need to protect property from being lost or converted. We are all better off when the contractor, public official or fiduciary fulfills their contractual obligations. To learn more about the surety bonds we have available, contact us at Danskin Agency today.