A Surety Bond, is a contract or a promise usually between three parties. The surety, the company that issues the bond, usually guarantees something. What the surety guarantees, varies depending on the industry. If this is commercial surety, it is for license and permits. Or contract surety, which is used mostly to guarantee bid performance or obligation. The three parties involved are The Principal, The Surety, and The Obligee. The Principal, is the person or company that is making a promise to do a job, or fulfill a contract, usually a business owner. The Surety, usually an insurance company that is represented by a surety producer or agent, is the one that guarantees the performance, license, or character of the principal. The Obligee, is the person or entity that requires the principal to obtain a bond. The Obligee is commonly a government agency, federal, state, or local or a building owner.
Most people just need a bond to start a business or to stay in business compliance with the law. If the principal defaults either through fraud or failure to perform the surety will pay the Obligee according to the contract and limit of the surety bond. Unlike insurance, if the surety pays out a claim the principal must pay back any losses to the surety. This is why a surety bond premium is based on credit. You can think of a surety bond as a line of credit, not like insurance. The rates for most sureties will depend on the principal’s credit. It is always good to have a surety agent and partner like Surety EZ on your team. We can help you regardless of your credit.
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