A Surety Bond is a basic term that describes a bond. Surety bonds are sometimes mistaken for insurance, when in fact a surety bonds is different because of the way they work and how they are underwritten.
A Surety Bond is essentially a guarantee. The bond is guaranteeing depends on what language is written in the bond. With surety bonds there are always 3 parties involved.
The 3 parties involved are:
- The Principal – the primary business or person entity who will be performing a contractual obligation
- The Oblige – the party who is the recipient of the obligation, normally a government entity
- The Surety – who ensures, guarantees the principal’s obligations will be performed. Sureties are therefor similar to insurance companies.
This agreement says that the Surety agrees to uphold – for the benefit of the oblige – the contractual obligations made by the principal. If the principal shall fail to uphold their agreement with the oblige. Often consumers require a bond before they will agree to enter a contract with a contractor.
The 2 main categories of Surety Bonds:
- Contract Surety Bond
- Commercial Surety Bond
A Contract Surety Bond guarantees a specific contract. A Commercial Surety Bond guarantees the terms of the Bond form instead of a contract.
If you would like more information about bonds, please call a licensed professional at Nutu Insurance at 425-453-8373.