Securing surety bonds can be beneficial for your business. They may help protect consumers by providing assurances that contracts will be fulfilled. Additionally, some jobs may require bond coverage before work can begin.
The professionals at Owens Insurance Agency can help you navigate the complexities of bonds and work with you to find the right surety bond coverage for your business. Contact us today to learn more.
Surety bonds are that agreement consists of three parties:
· The principal (e.g., a contractor or a business) is the party that obtains the surety bond. By being bonded, the principal provides certain assurances. Depending on the type of surety bond, the assurances may be that a contract will be fulfilled according to its terms, that payments will be made to the contract parties or that the principal is complying with applicable laws or ordinances.
· The obligee (e.g., a client, business or governmental entity) is the party that receives the remedy if the principal does not uphold the agreement.
· The surety (e.g., surety company or insurance company) is the entity that underwrites the bond and provides remedy to the obligee in the event a principal does not uphold the agreement.
If the principal does not fulfill its obligations to the obligee, the obligee may file a claim against the surety bond. The obligee may then receive compensation from the surety company. The surety company may subsequently look to obtain reimbursement from the principal for those expenses.
Types of Surety Bonds
There are numerous types of surety bonds. Three common types include contract bonds, commercial bonds and fidelity bonds.
1. Contract Bonds
Contract surety bonds help ensure that principals will complete projects as outlined in the contract. If they don’t adhere to the agreement, the obligee may receive compensation from the surety. There are several types of contract surety bonds, including:
· Bid bonds—This type of contract surety bond gives assurances that a contractor put forward a bid in good faith and will complete the job as outlined in the bid.
· Payment bond—A payment bond provides assurances that parties involved in the contract, such as subcontractors and suppliers, will be compensated for their work or goods.
· Performance bond—A performance bond provides assurances that the duties listed in the contract will be completed. If they are not, the surety may arrange for the tasks to be fulfilled or provide payment to have the work done.
· Maintenance bond—A maintenance bond provides protection if the principal’s work is defective. Maintenance bonds are typically in place for a set period of time (e.g., 12 months, 24 months).
2. Commercial Bonds
Commercial surety bonds may be required by an industry’s regulations or governmental entities (e.g., federal government). A common type of commercial bond is a license and permit bond. License and permit bonds provide assurances that a contractor’s work is compliant with the applicable legal codes. They may be required before work can start.
3. Fidelity Bonds
Fidelity bonds function as a type of insurance; they may provide employers protection against the fraudulent acts of employees. Examples of fidelity bonds include business services bonds and ERISA bonds.
Other types of surety bonds may be available and different projects or project phases may require specific bond coverages.
Contact Us Today
The professional at Owens Insurance Agency can provide more information on surety bonds and on bond cost. Contact us today to learn more about the available options and how being bonded can benefit your business.