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The Surety Bond: A Primer
Surety is an age-old concept with a straightforward mission: to provide a service for qualified individuals in need of a guarantor. In the United States, corporate sureties, which are prominent financial institutions, have been issuing surety guarantees for over a century. These entities possess ample capital to make various commitments in the form of surety bonds. Despite the common issuance of surety bonds by insurance companies, it is crucial to note the distinction between insurance and surety bonds, as they share similarities but also exhibit significant differences. amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo.
What is a Surety Bond?
A surety bond is a three-party instrument that guarantees the performance of a contract or obligation. In this arrangement, the surety, typically a corporation, assesses the qualifications of the applicant (principal) seeking the bond for the performance of a specific act or service. Upon approval, the surety issues the bond. If the bonded individual fails to fulfill their promised obligations, the surety assumes responsibility by either performing the obligation themselves or compensating for any damages incurred. The principal, who could be an individual, partnership, or corporation, is the party offering the action or service and is obligated to post the bond. The obligee, an individual, partnership, corporation, or government entity requiring assurance that the action or service will be performed, is protected by the surety in case of non-performance. In essence, a surety bond involves the surety providing a financial guarantee to the obligee that the principal will fulfill their commitments, with the surety intervening only if the principal fails to do so.
The Surety’s Job: Protection
A surety is like a helper that makes sure people and businesses keep their promises and don’t cause financial problems for others. To be a good helper, the surety company needs to make money and have a strong financial foundation. Imagine if someone with a bad reputation or not much money promised to do something – it wouldn’t be reliable. The surety steps in to guarantee that the promised job will be done. This is possible because the surety company is well-known for being trustworthy, and it has enough money to support its promise.
Now, let’s talk about the types of promises the surety helps with, like making sure people in certain jobs or positions don’t cause financial trouble. These include jobs like notary public, court-related roles, or even when someone needs permission or a license. The reason we rely on these surety helpers so much in today’s world is that there isn’t a practical alternative that offers the same level of protection for everyone involved.
Bond Types:
License & Permit
Coverage:
Guarantees compliance with state, city, county government laws and regulations affecting a
business that is licensed to operate.
Public Official
Coverage:
Guarantees official will faithfully perform duties as prescribed
by law.
Notary Public
Coverage:
Guarantees notary public will faithfully perform duties as prescribed by law.
Notary E&O
Coverage:
Provides protection to the notary for any negligent act, error or omission arising out of the performance of service for others
Fidelity - Dishonesty
Coverage:
Protects the employer against a dishonest act by an employee. Pays for loss of money or other property, real or personal.
Fiduciary - Administrator
Coverage:
Guarantees faithful performance so the interest of those concerned will be safeguarded.
Judicial (Court)
Coverage:
Guarantees that the principal in lawsuit will pay any damages,
court costs and attorney fees arising from court action.
Lost Instrument - Misc.
Coverage:
Guarantees performance of contracts and agreements with private parties and government
agencies.
Tax Preparer E&O
Coverage:
Covers claims against
tax preparers by clients
up to the policy limit. Optional
add-on coverage for Bookkeeping also available.
Contract Bonds (Bid, performance, and payment)
Coverage:
These bonds guarantee to the obligee / owner that the bonded principal will perform according to the terms of a written contract. The most common types are bonds covering construction contracts, but there are other types such as janitorial service, supply contracts, and bonds covering maintenance after completion of the job.