Understanding Surety Bonds
A surety bond involves three parties:
- The principal, who will complete the task.
- The obligee, who the task is being completed for. The obligee requires the bond.
- The surety, the insurance company who guarantees the obligee that the principal will complete the task.
Example – Construction & Development Bonds
Construction & Development Bonds are commonly used in the construction industry. In this example, the contractor is the principal, who is building a house for their customer, the obligee. The customer requires a surety bond before moving forward, so the contractor will purchase one from an insurance company (the surety) as a guarantee to the customer that the job will be completed as agreed. If the task is not completed, or only partially completed, the customer can submit a claim, which the insurance company will investigate. If the complaint is valid, the insurance company will pay the customer any claims that do not exceed the agreed upon bond limit, and the contractor will pay back the surety. In this way, a surety bond functions as both credit to the contractor, and insurance to the customer.
Types of Surety Bonds
There are many different types of surety bonds for different situations, including:
- Construction & Development Bonds: Insures construction will be completed as agreed.
- Contract Bonds: Insures specific contracts.
- License Bonds: For obtaining licenses or permits, usually required by the government.
- Court Bonds: When required by a court.
- Public Official Bonds: Insures the honest & ethical performance of elected/appointed officials.
- Fidelity Bonds: Insurance for your company that is not required by anyone.
Purchasing the wrong bond can be a costly and time-consuming mistake. At LG Insurance Agency, we will meet with you to determine the exact bond needed for any given situation, and thoroughly investigate any claims made by the oblige. Contact us today to discuss your options.