Surety bonds are an insurance policy for the party requiring the bonds. Surety bonds work as a form of insurance to the obligee (project owner), as they are the beneficiary that can file a claim if the bond’s promise is not met. It is a form of credit to the principal (contractor), as claims must be re-paid by the principal to the surety.
Wikipedia explains it this way:
A surety bond or surety is a promise by a surety or guarantor to pay one party (the obligee) a certain amount if a second party (the principal) fails to meet some obligation, such as fulfilling the terms of a contract. The surety bond protects the obligee against losses resulting from the principal’s failure to meet the obligation.
Each surety bond that’s issued acts as a three-party contract.
- The principal purchases the bond to guarantee the quality of work to be done in the future. This is usually a business owner or other professional.
- The obligee requires the principal to purchase a bond to avoid potential financial loss. This is usually a government agency.
- The surety issues the bond and financially guarantees the principal’s capacity to perform a specific task.
Who Needs Surety Bonds?
The construction industry makes up a huge part of the surety bond market. Hometown Insurance Center can help you determine if your company would benefit from a surety bond.
We have access to major bonding companies giving us the opportunity to secure the most convenient, confidential bond products at highly-competitive rates.
Contact our agency today to speak with one of our trusted agents who can further explain to you about surety bonds, fidelity bonds, licensee bonds and so much more! Allow us to help obtain the security you’ve been looking for. Just fill out the form on this page and we’ll connect with you.