Surety bonds are contracts guaranteeing that certain responsibilities will be met. These obligations may involve meeting a contractual commitment, paying a debt or performing specific duties. The bond terms will indicate that one party becomes answerable to a third party for the acts or non-performance of a second party.
In this day and age, suretyship provides an insurer’s promise of performance; available to meet a wide variety of business, governmental and individual needs.
It is common that surety bonds are required in many business transactions as a means of reducing or transferring business risk. State and federal government agencies mandate surety bonds for the purpose of reducing public responsibility for the acts of others. The courts require bonds to secure the various responsibilities of litigants, such as the ability to pay damages. Surety bond insurance protects those assets that you cannot put at risk.
The Parties Involved
A typical surety bond identifies separate parties to the bond contract and describes their individual relationship and specific obligations.
There are three different parties involved in a surety bond. A principal names the party involved who has agreed from the beginning to hold true to any obligation which is the subject of the bond. The A principal party is also commonly known as the obligor. An obligee is the individual or organization protected by the bond. A guarantor or surety is the insurance company that is issuing the bond.
Surety Bond Types
The agreement holds the principal to comply with the terms of a contract. If the principal is unable to successfully perform the contract, the surety bond provider clarifies the principal’s responsibilities and ensures project completion.
There are five common types of surety bonds.
- Bid bonds guarantee that the contractor will enter into the contract at the price bid and provide the required performance and payment bonds.
- Performance bonds protect owners from financial loss if the contractor fails to perform in accordance with terms and conditions.
- Labor and material bonds are normally issued with performance bonds; and cover payment for equipment, labor, materials, and services in the event the contractor fails to pay for them in accordance with the contract terms.
- Payment bonds guarantee that the contractor will pay specified subcontractors, laborers, and materials suppliers associated with the project.
- Maintenance bonds assure there will be no defects within a specific time period following a project’s completion. Consider the benefits of obtaining surety bond insurance to uphold your success.
About Tri-State Insurance Agency
At Tri-State Insurance Agency, we want to ensure your high-net-worth homes are protected during the holidays and year-round. Our homeowners’ insurance policies are designed specifically to protect affluent homes like yours. To learn more about our coverage options, contact our specialists today at (973) 579-6776.