Many people are unaware of what surety bonds are, let along if they need them. They are sometimes called indemnity bonds or security bonds. The first refers to a type of bond that works with a loan, while the latter is simply a mispronunciation of the term. Here are some key concepts to better understand these bonds.
If you can understand the people involved in a bond contract, you will be able to understand it’s definition better. There are three parties involved:
The PRINCIPAL: the one who needs a bond
The OBLIGEE: the agency or individual requiring the bond
The SURETY: the insurance company guaranteeing the principal can fulfill bond responsibilities
The question now becomes, how do you know if you need a surety bond? There are four common areas requiring a bond.
Your employment/business needs to be licensed.
Your construction project may require one.
Your court proceeding may need one.
You want to protect your business.
Within these situations, surety bonds work as a guarantee that you will meet your obligations to offer a service, product or comply with legal commitments. It’s a three-party contract, with the surety offering restitution to the obligee should the principal avoid his duties.
Contact a local agent to find out more about the bond process and which bond may be right for you.