What You Need to Know About Bonds

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.

The Participants

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 Problem

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.

The Plan

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.