Surety bonds are a way to protect parties who are entering a contract or business deal. They provide an assured security provision that the principal will complete the agreed-upon tasks.
These bonds are available for a variety of different business obligations and industries. Typical examples include contractor licenses, bids, performance, and payment bonds.
Fiduciary Bonds
Fiduciary Bonds are one of the most common types of surety bonds. They guarantee that a person appointed by a court (such as an executor, trustee, or guardian) will fulfill their legal duties and adhere to fiduciary regulations.
Fiduciary bonds protect estates and beneficiaries from dishonest acts by fiduciaries, including theft, embezzlement, mismanagement, or fraud. When a claim is filed, the surety company will pay out up to the bond’s coverage amount.
License & Permit Bonds
License and permit bonds are types of surety bonds required before a business can obtain certain licenses or permits. They protect consumers by guaranteeing that a business will follow all laws and regulations.
These bonds also help businesses pay their bills on time, such as utility bills, taxes, employee wages, etc. If a company fails to comply with these regulations, the government can make them pay back a certain amount of money to compensate for the harm that it caused.
This type of bond involves three parties: the obligee (a government agency), the principal (the business that needs the bond), and the surety company that issues it. The surety guarantees that the principal will abide by the bond terms in exchange for premiums paid.
Non-Contract Bonds
Non-Contract bonds are a type of surety bond unrelated to construction projects. They are usually provided by a bank or insurance company.
They are issued as a guarantee to one party in a contract that they will fulfill the terms of that contract.
In many industries, like construction and healthcare, businesses must prove their ability to do the job and meet the project’s financial requirements. This is why they are required to submit bonds as a form of security.
Public Official Bonds
An individual nominated or elected to a position in the public sector is protected by a particular kind of surety bond known as a “public official bond.” This can apply to any position that deals with money, such as a court clerk, commissioner, treasurer, tax collector, manager, etc.
These bonds are issued as a three-party contract between the public official, the obligee (the entity that requires them on a county, city, or state level), and the surety. The bond works as a guarantee that the public official will faithfully perform their job duties, and they will reimburse the obligee should a claim arise.
This kind of surety bond’s price varies by state and is determined by the particular governmental post being applied for. It is also crucial to remember that one of the primary elements sureties consider when calculating a bond’s price is the applicant’s credit history.
Performance Bonds
Performance bonds are among the most common types of surety bonds contractors must obtain before finalizing a project and getting paid. State or local governments typically require these bonds to ensure that their contractor will perform the work according to the contract.
A performance bond establishes a three-party contract between the client (the owner), the contractor, and the surety. If a claim is filed, the surety will compensate the owner for delays and any damages caused by non-performance.
A performance bond can help ensure a good working relationship between the project owner and the contractor. However, it can only resolve some issues that may arise on a project.
Maintenance Bonds
A surety bond, known as a maintenance bond, sometimes known as a warranty bond, ensures the quality of the work completed on a construction project. These bonds guarantee that the contract, construction codes, and professional standards complete the work.
These bonds also help protect clients from issues they must face after completing a project. These include design flaws, faulty materials, and poor workmanship.