A surety bond is a three-party agreement. An obligee or project owner generally requires the principal or contractor to purchase the surety bond and comply with its terms and conditions. In case, the principal breaches those terms and conditions, the surety company comes ahead to financially support the bond. A surety is the agency that issues the bond. In many cases, you may be legally required to buy a surety bond due to your job type or the place where you work.
Many government bodies mandate the use of surety bonds for certain industries as a preventive protective measure for consumer interests. Before issuing a bond, surety providers carefully examine the application of applicants. During the underwriting process, they may also look at your work history, credit score and various other financial records to determine your reliability.
Many people often get confused between bonds and insurance. It is important to note that the bonds and insurance are two completely separate means of financial protection. Insurance is simply the risk transfer tool between two parties. On the other hand, surety bonds acts as a three-party agreement where financial loss is not expected. Some of the most common types of surety bonds are:
Commercial Bonds: Working professionals looking to get a bond for themselves or for their business usually need a commercial bond. Most common commercial bonds are license and permit bonds, generally necessitate before government agencies. The key purpose of commercial bonds is to safeguard the public interest and keep the government from losing money. The type of license and permit surety bonds that government agencies require in most states include auto dealer bonds, contractor license bonds, mortgage broker bonds, sales tax bonds, etc.
Contract Bonds: As the name suggests, contract bonds are the assurance that the contracts will be completed as per their legal terms. Though contract bonds are used for several reasons, they are mostly used in the construction industry. The most common types of contract bonds include bid bonds, performance bonds and payment bonds.
Court Bonds: Court bonds are commonly required to protect businesses, communities and individuals. Some common types of court bonds include probate/executor/fiduciary bonds, guardianship/custodian bonds and appeal bonds.
If you are planning to buy surety bonds online, make certain to choose an agency that is authorized to underwrite bonds and provides the best rate and terms for your business.