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Friday, January 28 2011
What is a Surety Bond?  A surety bond is a guarantee.  What the bond guarantees varies depending on the language of the bond.  It is a form of credit, it is not insurance for you.
How do surety bonds work?  The principal (you) pays a percentage of the bond amount called a bond premium.  In return, the bonding company extends "surety credit" to make the required guarantee (the bond).  A claim can arise when the principal (you) does not abide by the terms of the bond.  If you cannot fulfill the law or pay, your bonding company may have to, but will then pursue you for as long as it takes until you reimburse them for all loss, legal costs, and expenses.
What good is a bond if I have to pay for claims?  A bond is not insurance.  It is a form of credit where the principal (you) are responsible to pay any claims.  The alternative to a surety bond is to post cash or a letter of credit with your bank.  Surety bonds are advantageous, as they typically require no collateral, which frees up capital.
Why do I need a surety bond?  A government authority or private entity is requiring the bond in order for you to operate.  The bond ensures you will follow their guidelines.
Who is the obligee?  The obligee is whoever is requiring the bond of you.  You are not the obligee.  For example, the obligee for a contractor would be whoever they are doing the work for.  The obligee for a license bond (the city, suburb, or village) would be whoever they are filing their license with.
Here are some Surety Bond Categories:
  • Contractors Bid Bonds
  • Contractors Performance and Payment Bonds
  • Fidelity Bonds (Employee Dishonesty; ERISA Bonds)
  • License and Permit Bonds
  • Notary Public Bonds
  • Miscellaneous Bonds
Please contact us for a quote. 
Posted by: Chris H. AT 01:52 pm   |  Permalink   |  Email
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