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Surety Bonds guarantee that specific tasks are completed by bringing three parties together in a mutual, legally binding contract.
- The principal is the individual or business that purchases the bond to guarantee future work performance.
- The obligee is the entity that requires the bond. Obligees are typically government entities working to regulate industries and reduce the likelihood of financial loss.
- The surety is the insurance company that issues the bond. The surety extends a line of credit in event the principal fails to fulfill the task.The obligee can file a claim to recover losses if the principal does fail to complete the task. If the claim is valid, the insurance company will pay reparation up to the bond amount. The underwriters will then expect the principal to reimburse them for any claims paid.
more about surety bonds
Surety bonds provide financial guarantees that contracts and other business deals will be completed according to mutual terms. Surety bonds protect consumers and government entities from fraud and malpractice. When a principal breaks a bond’s terms, the harmed party can make a claim on the bond to recover losses
The construction industry makes up a huge part of the surety bond market, as contract bonds generate approximately two-thirds of total surety premium written. Commercial bonds deter service industry professionals and businesses from taking advantage of consumers. Most commercial bonds are required as a part of a state’s licensing process. Thousands of surety bond types are out there, but some of the most utilized surety bonds fall into one of four major categories:
- License and Permit
- Construction Bonds
- Commercial Bonds
- Court Bonds