Surety bonds are three-way contracts, or financial instruments, made up of the following:
- The principal – the person who purchases the bond to pg slot certain actions will be done by them in the future. This is usually a professional or a business owner.
- The obligee – the person or agency requiring the bond be purchased to avoid future financial loss. This is often a government agency.
- The surety – the issuer of the bond who is financially guaranteeing the principal’s ability to satisfactorily perform a certain task or tasks. The sum the surety promises to pay is called the penal sum. A surety bond is only as good as the solvency of the surety writing it. These are typically surety bond companies or insurance companies.
What Types of Surety Bonds are There?
Whenever someone needs a financial guarantee that certain actions will take place, a surety bond may be called for. There are literally hundreds of types of these bonds that may be written but they all basically fall into one of four categories: contract bonds, commercial bonds, fidelity bonds and court (or judicial) bonds.
- Contract Bonds – used by contractors to reduce the risk to owners of or investors in contract projects. The contractor will be the principal and the owner or investor will be the obligee. Various types of contract bonds include bid bonds, performance bonds, payment bonds, maintenance bonds and commercial surety bonds, often required by various government agencies of licensed professionals as a protection of public interests.
- Commercial Bonds – required by local, state or federal government agencies to protect public interests. These are often required of professionals that operate with a license, such as contractors, to ensure they adhere to all required codes, regulations and proper conduct.
- Fidelity Bonds – a bond that protects a company from theft or dishonesty of employees. These are used by companies whose employees handle cash or other valuable assets. A fidelity bond is what’s considered a “blanket bond”, meaning when the principal, which is the company, purchases it, protection against theft or dishonesty extends to cover all employees of the business.
- Court Bonds – these bonds are categorized as either defendant bonds or plaintiff bonds. The former blocks a plaintiff from pursuing the satisfaction of a claim. Examples of this are appeal bonds and bail bonds. Plaintiff bonds financially protect the defendant should the plaintiff lose the court case.