Surety Bonds

Surety Bonds, sometimes referred to as just “bonds”, have a  function similar to traditional insurance.  A surety bond is a promise to assume responsibility of debt, default, or failure and the costs incurred as a result.

A bond involves three parties.  First there is the principal.  The principal is the entity, either a person or organization that is being secured.  Secondly there is the obligee.  This is the person or organization that is owed money or labor or both.  The third party is the surety, which is the person or organization that is promising to pay should the principal fail to do so.

How it works is that the principal enters into a contract with the surety.  The surety agrees to pay a certain amount to the obligee should the principal default.  The principal is then obligated legally to reimburse the surety for all costs, including legal expenses incurred in the handling of the case.  Bonds are designed to protect the obligee against situations in which the principal fails to perform any contracted service.  If a person or company is bonded, it is generally accepted that they have gone through a prequalification process, usually by an insurance or other finance agency, and are deemed qualified in expertise and financially stable for the purposes of conducting the agreed upon services.

Listed below are some common types of surety bonds.

License and Permit Bonds: License and permit bonds, two types of commercial surety bonds, are bonds needed to obtain a license or permit to engage in certain types of business, and are often required by federal, state or local governments in cases which involve taxpayers’ dollars for projects.  They also guarantee that the principal will comply with any and all codes and regulations that apply.

Contract Bonds: A contractor may be required to have a surety bond to obtain a lincense for contracting.  However there are also contract surety bonds include bid bonds, performance bonds, payment bonds, maintenance bonds, and subdivision bonds.  These are bonds for contractors pertaining to a specific project.  For each project hey represent a substantial guarantee by the surety bond company that backs the contractor with its own financial strength and assets.

Miscellaneous Bonds: Miscellaneous Bonds is a category of innumerous options.  They include such things as bonds for leases, payment of utility bills, worker’s comp for the self-insured, lost securities, and more.  All are based on the same concept – if the bonded entity fails, the backer pays.

The list of types of surety bonds is quite extensive.  Notaries, janitors, mobile home dealers, pawn brokers, condo associations, and public officials can secure a bond.  The concept of being bonded is a complicated one.  See Chad Olsen of SoCal Platinum Insurance for the best advice possible and smooth processing of a surety bond.