Surety bonds can help build trust with clients as they provide assurances that your business will adhere to a contract or meet applicable regulations. In some situations, surety bonds may be required before work on a project can begin.
Our knowledgeable team can help you secure the surety bonds that meet your business’s needs. Contact us today to get started.
What Is a Surety Bond?
A surety bond is a form of consumer protection and is a contract among three parties:
The principal (e.g., your company) purchases and carries the surety bond.
The obligee (e.g., your client) requires the principal to secure a bond. The obligee may be a private party or a governmental entity.
The surety (e.g., an insurance company) underwrites and maintains the bond.
If the bonded principal fails to meet their contractual obligations, the obligee may file a claim against the bond. The surety then investigates the situation, and the principal may have a chance to fix the issue. However, if it isn’t remedied, the surety may provide financial compensation to the obligee up to the bond amount. The principal is subsequently obligated to reimburse the surety for that payment.
Surety Bond Examples
There are several types of surety bonds, including:
- Bid bonds—These guarantee a business submitted a bid in good faith and will start a project if they win the contract.
- Performance bonds—These guarantee a business will complete a project in accordance with the contract’s terms.
- Payment bonds—These assure that contractors will pay suppliers and subcontractors for their materials and labor.
- Maintenance bonds—These guarantee that defects in workmanship or materials will be remedied if the problem arises within a set term (e.g., one year) after a project is finished. They are also known as warranty bonds.
- License and permit bonds—These guarantee a business will comply with applicable laws and regulations. They may be required before receiving a license or permit from a governmental entity.
Other types of surety bonds may be available. Contact your agent for more information.
Our knowledgeable professionals can help you get the surety bonds your business needs. Contact Rich Toreson Insurance Agency Inc today for more information.